Housing affordability directives not a silver bullet

Housing affordability is a central economic and political issue in the United States. Rising home prices, limited supply, and elevated mortgage rates continue to constrain both prospective buyers and existing homeowners. While policymakers have recently introduced measures intended to ease these pressures, the structural forces shaping affordability — chronic underbuilding, demographic demand, and rate lock in — remain largely unaddressed. Two policy announcements in early January 2026 reflect heightened political attention but offer limited practical relief.

Fannie and Freddie to purchase US$200 billion MBS

US President Trump’s directive for up to US$200 billion of agency mortgage backed securities (MBS) purchases aims to support affordability by lowering mortgage rates. Federal Housing Finance Agency Director Bill Pulte confirmed that government-sponsored enterprises (GSEs) in support of the US housing market, Fannie Mae and Freddie Mac, will conduct these purchases under their existing Preferred Stock Purchase Agreements with the US Treasury. The announcement spurred a brief tightening in agency MBS spreads, but the magnitude was modest. Further compression is unlikely given already tight valuations.

The program’s effectiveness depends heavily on unspecified details, including the pace of purchases and the coupons targeted. Potential accompanying actions, such as cuts to mortgage insurance premiums or guarantee fees, might deliver incremental borrower relief but would also raise prepayment risk and weigh on MBS valuations. Overall, the program provides limited rate support and does not materially alter the structural constraints facing borrowers.

Ban on institutional buying of single-family homes

The administration also proposed restricting institutional investors from purchasing single-family homes to improve affordability by reducing competition for owner occupiers. However, implementation challenges are significant. Policymakers have not defined what constitutes an “institutional” buyer or explained how such restrictions would be enforced.

The single family rental (SFR) market suggests the impact would be marginal. Large operators owning more than 1,000 homes represent only about 3% of the market, while small multiproperty owners account for the majority of rental stock. Because institutional investors hold such a small share of single family homes nationally, a ban would affect only a narrow segment of transactions. So, the ban is unlikely to shift affordability meaningfully at the national level.

Demand-side support without supply-side reform

One notable omission across recent proposals is meaningful support for first‑time homebuyers that directly improves access rather than simply lowering rates. Targeted tax credits, expanded downpayment assistance, or preferential pricing for first‑time buyers could improve entry‑level affordability without inflating demand at the upper end of the market. However, without parallel supply expansion, even these measures risk being capitalized into higher prices.

More critically, federal affordability initiatives continue to avoid confronting local land‑use regulation. A top‑down mandate or conditional federal incentive structure — tied to transportation funding, infrastructure grants, or housing subsidies — could encourage municipalities to cut red tape, streamline permitting, and meaningfully expand accessory dwelling units and multifamily construction in high‑cost suburban markets. These supply‑side constraints remain among the most binding limits on affordability, yet they sit outside the scope of current federal actions.

Impacts on the US economy and consumer

The expected consumer benefit from the GSE purchase program is modest. A 20 basis points (bps) reduction in mortgage rates offers slight affordability relief but does not meaningfully counteract the larger forces limiting mobility and inventory. Most homeowners continue to hold mortgages far below prevailing rates, discouraging selling and keeping supply constrained. Even if reductions to guarantee fees or mortgage insurance premiums accompany the program, the improvement in affordability would be incremental relative to the broader supply and rate dynamics.

Similarly, the proposed institutional buyer ban would have little nationwide effect. Although the rhetoric could improve consumer sentiment, the core drivers of affordability — tight supply, high borrowing costs, and local regulatory barriers — remain unchanged and continue to shape housing outcomes more strongly than federal policy directives.

Impacts on the structured finance market

Agency MBS spreads tightened modestly following the purchase announcement, but further tightening is unlikely given already full investor positioning. Unlike the US Federal Reserve’s quantitative easing programs, the GSEs are expected to hedge the duration of purchased securities, leaving the initiative largely interest-rate neutral. Should policymakers pursue fee reductions that increase prepayment speeds, MBS fundamentals may weaken even as technicals improve.

The institutional buyer ban also has limited implications for securitized markets. While restricting institutional purchases could modestly reduce future single family rental securitization volumes, any resulting supply driven technical support would be offset by declining liquidity over time. Institutional investors played a stabilizing role during the post financial-crisis recovery, but with no catalyst for steep home price declines today, their diminished role is unlikely to affect market stability meaningfully. Geographic concentration of SFR activity further limits any national effects.

A simpler approach to lowering mortgage rates

Another way to reduce mortgage rates without relying on large scale asset purchases would involve reducing guarantee fees by roughly 25 bps. Lowering guarantee fees and adjusting Federal Housing Association (FHA) mortgage insurance premiums would reduce borrowing costs directly by aligning pricing more closely with the marginal cost of credit guarantees. These steps would face resistance from non agency lenders and increase prepayment risk, potentially widening MBS spreads. The borrower benefit would be more substantial and more targeted than what would be created by large purchase programs.

Key uncertainties and watch items

Other proposals that have been floated include 0% downpayments, tapping 401(k) funds to use as equity, capital gains tax changes on homeownership, as well as portable and assumable mortgages. Key variables to monitor include:

• The design and pacing of the GSE purchase program
• Potential adjustments to FHA or GSE pricing frameworks
• The legal and operational feasibility of an institutional buyer ban
• The emergence of first-time-buyer tax incentives
• Federal efforts to override or condition funding on local zoning reform

While these developments may influence near term market dynamics, none fundamentally alter the reality that US housing affordability challenges are deeply rooted and slow to resolve.

Investment implications

Though we expect new federal policies to have modest effects, if any, on housing affordability challenges, there could be ripple effects across markets:

• Agency MBS – Expect rangebound spreads with limited additional tightening. Heightened policy headlines may increase relative-value opportunities.
• Mortgage credit – Persistent rate lock in and limited inventory support stable mortgage credit performance due to lower selling volumes and strong embedded home price appreciation (HPA).
• SFR credit – Policy proposals create no fundamental changes, so SFR securitizations should remain steady, with any issuance decline offset by lower liquidity.
• Homebuilders/supply chain – With no supply side reforms, there is no near term catalyst for significant new building activity. Potential upside would depend on zoning reform, which is unlikely.
• Mortgage rates – Lock in rates limit household mobility, which leads to a less dynamic labor market, weaker potential growth, and higher frictional unemployment.
• Macro positioning – Housing dynamics reinforce a slow grind, low mobility environment, favoring carry oriented exposures rather than directional interest-rate bets.