It’s a good thing Donald Trump’s going to rescue the US housing market by “asking” (Trump doesn’t “ask”) Fannie and Freddie to buy a quarter trillion in MBS, because it’s rough out there.
Long-delayed government data released Friday by the Census Bureau showed new residential construction activity slipped nearly 5% in October to the slowest annualized pace since May of 2020.
The 1.25 million headline print undershot consensus, underscoring the dour mood among homebuilders who were particularly forlorn towards the end of Q3.
As a quick reminder, builder sentiment as measured by the NAHB spent the whole of 2025 underwater, which is to say below the threshold separating net optimism from pessimism.
Headline NAHB sentiment in September (i.e., the month prior to the period covered by Friday’s starts and permits data) was an abysmal 32, tied for the worst reading since 2012.
On the bright(er) side, single-family starts managed a gain for October, but the uptick merely brought the annualized pace back to levels observed over the summer.
874,000 for single-family starts still counts as very subdued both in the post-pandemic context and historically, with the caveat that single-family construction suffered a prolonged downturn following the subprime bust.
Permits also disappointed in Friday’s release, falling slightly versus expectations for a gain. Single-family permits dropped to an annualized 876,000, among the lowest readings since the spring of 2023.
The data caps a week of frenzied policy announcements from Trump on… well, on damn near everything under the sun, but on US housing, where an acute affordability crunch is seen as a major drag on his approval rating, especially as it relates to inflation.
In addition to banning institutional investors from buying single-family homes, Trump’s angling to institute what amounts to a new QE program via the GSEs, bypassing the Fed. As noted here at the outset, the idea is to compel Fannie and Freddie to buy $200 billion in mortgage bonds. Recall that the Fed’s been letting its MBS portfolio roll off for years.
When taken in conjunction with what are almost guaranteed to be a series of additional rate cuts from the FOMC once Jerome Powell’s term as Chair ends in May, there’s an argument to be made that Trump’s hell-or-high-water approach to reducing borrowing costs across the curve will ultimately prove effective. But the MBS plan’s yet another example of the administration’s penchant for unilateral policymaking in the strictest sense of the word “unilateral.”
Even if you don’t buy the “dictator” label for Trump, he’s absolutely trying to dictate outcomes across the entire spectrum of the US government’s concerns from the domestic economy to foreign policy, and in many cases with little or no input from key stakeholders.
The risk — one risk — is that Trump’s MBS plan backfires. He may be able to pressure rates lower by introducing a price-agnostic, automatic bid for MBS (the impact of which will be partially attenuated by GSE hedging), but if lower financing costs catalyze too much demand at a time when supply’s still constrained, Trump might inadvertently facilitate another bout of upward price pressure.
On the bright side, if that ends up being the case, another home equity bonanza could at least forestall a spending downturn by making homeowners that much richer on paper.
Bottom line: The investor ban and the “quasi-QE” push (as some observers described the MBS-buying idea) look more like gimmicks than structural fixes for a broken housing market. That’s Trump for you. Long on gimmicks and short on real solutions.
Supply constraint seems less of an issue given rising inventory and months on market. -50bp mortgage rate will, my guess, improve affordability more than it raises prices. But not much. The 20% downpayment hurdle will remain. A renter may get lured into the first-time buyer market, but have they saved up the requiste year’s salary? So look for Trump to “ask” the GSEs to start buying mortgages with higher LTV.
To address supply, look for EOs “directing” states/locals to drop permitting, zoning, etc requirements, to go with the EOs prohibiting institutions from buying houses. Congress is more likely to implement the latter than the former, but the Federal govt can withhold housing funds from states that don’t cooperate. Logically Trump should also cancel tariffs on housing materials and equipment, and deportations of construction workers. Not sure the latter can happen, ICE is out of control.
Reduce mortgage rates and down payments enough, and increase supply enough, and I think Trump can make some progress on housing. Not by Nov 2026. And only until the GSEs get into trouble.
Now talk of eliminating penalty for 401k withdrawals for house purchases. Hope trade in RE forthcoming.
I’m sure some kind of CPS “hope” trade is being cooked up after this week. Agree w/ your outlook and strategy and it would be bewildering to see him actually stack something cohesive together. Also agree that progress would be slow and minimal, but it’s a start. The more H writes about it, the more I’m on the side of it taking a 5 handle on rates to truly open the gates for homebuyers to step in w/ confidence and force.
I doubt Trump ever read about the introduction of mongooses to Hawaii, but I have a feeling we’re going to be learning that lesson repeatedly the next few years (decades?).
In a twisted final chapter to your sugar cane story, Maui no longer has any sugar cane production since 2016 and they are still trying to figure out how to viably repurpose the farmland. The toxic, shuttered sugar mill and mongoose, however, remain.
Instead of having a running economy that bounces around some naturally, some months better, some worse, but long term, a growing economic pie that gives some of us some certainty, what we have is a whack a mole president who keeps busy stopping this, doing that, always bragging. “You are all so well off !” Now it is mortgages. Soon, something new we haven’t even thought of.
I understand how creating artificial “demand” for MBS could lower lending rates, but how sustainable is that? It takes years to bring new housing on-line, and that is only when you have affordable (meaning deported) skilled labor, and inexpensive building supplies. For example, is Canadian lumber still being tariffed, and if so then at what rate?