The housing market has been an economic sore spot for years...
Prices have shot up more than 50% since 2020... Rents have climbed about 35% in the same period... And there's a chronic housing shortage.
Now, President Donald Trump is trying to come up with a solution...
One idea is for Fannie Mae and Freddie Mac to ramp up purchases of mortgage-backed securities (a type of investment bond). This would lower mortgage rates by hiking demand for those bonds.
Another idea is for Congress to restrict large institutional investors from purchasing single-family homes.
The problem is, those investors are a key reason new homes get built at all. Restricting them could make the shortage worse, not better.
As we'll explain, the best housing policy would make it easier to build, not harder to sell what gets built.
The Trump administration's housing push is running into a familiar wall...
When the president floated a 10% credit-card interest-rate cap last month, many consumers rejoiced.
But behind the scenes, it wasn't as popular... Republican House Speaker Mike Johnson brushed it off. JPMorgan Chase (JPM) CEO Jamie Dimon reportedly called it an "economic disaster."
Housing policy has a similar problem... It's easy to sell to voters, but hard to get right, in practice.
Under Trump's proposal, Fannie Mae and Freddie Mac could buy as much as $200 billion in agency mortgage bonds. That sounds like a lot until you realize the size of the market...
There are roughly $9 trillion worth of these bonds outstanding. So $200 billion is just a drop in the bucket (2% of the total).
Still, analysts think that strategy could lower mortgage rates by as much as 0.25 percentage points. Right now, 30-year fixed-loan rates are hovering around 6%. A rate of 5.75% would offer homebuyers some relief. But it wouldn't be a reset.
Cheaper money doesn't create more homes. It just increases short-term demand...
If mortgage rates drop, buyers rush in, and inventory remains tight, the math points to higher housing prices.
You see, true affordability is based on two main variables: financing costs and housing supply. If policy corrects one side and mishandles the other, individual buyers still lose.
When it comes to institutional investors, people picture big firms showing up with automated bids and deep pockets, beating families to every listing.
However, these investors own less than 1% of the nation's single-family housing stock, and about 2% to 3% of single-family rentals.
Some local markets have much higher shares. But the broad national footprint is smaller than politicians suggest.
The real housing story isn't about institutions versus individuals. It's about the U.S. housing shortage...
The current shortfall is between 4 million and 5 million homes. That means America needs more units, and fast.
Trump's proposal to ban institutional investors isn't the right approach. It would actually stunt homebuilding...
A builder is more likely to commit to a 200-home development if they know an institutional buyer will scoop up 50 of those units. That guaranteed demand moves housing inventory and keeps new construction on track.
Investment manager Pretium, for example, buys most of its homes, in bulk, directly from homebuilders. As of July 2025, it had also originated more than $1 billion in loans to builders.
If you take away the institutional buyer, you cut out massive capital investments. And you risk creating fewer homes... That's the opposite of what voters want.
Good housing policy is more complicated than Washington is letting on...
Bond-buying programs can reduce financing costs for homebuyers. But they're most effective amid a strong housing supply. (If supply is tight, that just leads to higher prices.)
The best strategy is reducing mortgage rates and expanding the housing supply. Think: lower barriers to construction and higher-density building plans.
That's the right equation for a healthy housing market.
Homebuilder stocks have rallied so far this year... The State Street SPDR S&P Homebuilders Fund (XHB) is up 12%, as of this writing. And that makes sense if the market is betting on a "rates down, demand up" story.
The problem is, demand without supply strains affordability. A crackdown on institutional buyers risks slowing down construction exactly when the country needs it most.
Meanwhile, investors should keep an eye on financing trends (including mortgage rates and interest rates) and homebuilding activity. Everything else is just "campaign noise."
Regards,
Joel Litman
March 2, 2026
