The Government Just Hit PANIC MODE on Housing. Here's the Truth

It's clear the Trump administration will do anything to continue this housing market boom that we've had over the last few years. It's starting to correct and they're stepping in to try anything to prevent the prices from coming down. This is pricing out the next wave of buyers who are frustrated and we're facing this extreme affordability crisis. And instead of facing it head-on, they're creating creative financial engineering to continue the run on the real estate market.

So, let's dig into the top five policies that came out this week that were basically thrown like spaghetti up against the wall and see what sticks. And there's a lot of backlash over them. Let's dig into the thoughts that I have on these. And I'd love to hear from you your thoughts on every single one of these as well.

So, look, these proposals that the administration is making are not making real estate more affordable. I want to be very clear on it. Yes, they make it more accessible. That is completely different.

It's very nuanced, but it does not make it more affordable. They actually make it worse for the consumer in a lot of circumstances if they were to take on these financial products and it certainly makes them worse for the next generation of home buyers trying to get into the market. So, look at this. This is a picture of the Titanic.

It's with all these proposals that are being thrown around, a 50-year mortgage, portable mortgage, assumable mortgage. They're even talking about handing out two $2,000 checks to people who earn less than $100,000 a year. Just here here you go. Uh here's some money.

And meanwhile, we have the federal debt situation where we have over $ 38 trillion in our in our debt and it's continuing to compound at a rate that's basically unsustainable at this point and Congress is doing absolutely nothing to fix this catastrophic problem. So, it's kind of like we're all just rearranging the furniture on the Titanic while we're, you know, so we don't notice what we're going into, which is this huge federal debt crisis that we'll be having over the next likely 3 to 5 years as our debt continues to climb. So, here's the thing. Housing prices or real estate have been up 100% over the last decade.

And the main issue is that wages are only up 25 to 35%. This is a great chart that comes out from Visual Capitalist. The increasing home housing income housing gap in America. Look at this ratio.

It's 5.8 times the price to income ratio than and what we had previously was only 3.5 times. So, it is so much harder than it was in the 1980s than it is today to purchase a home at the median household income. And I can tell you the folks I talked to who are younger, they are struggling. They have their student loans, they have their car loans, they have their credit card loans, and now we have, you know, buy now pay later, which is insane.

You know, you're ending up paying interest on a hamburger you bought three months ago. It makes no sense. And this is continuing to get worse and it's ballooning prices and it's pricing out the next generation. That is why right now we're seeing the median age of a home buyer be 61 years old which is absolutely insane.

And there's a lot of reasons for this that we'll dig into it. But now let's jump into, you know, this is obviously the problem. The income housing gap problem is is out of control. It's it's getting worse.

And what is the government going to do to fix it? Are they going to stop manipulating the industry or are they going to continue manipulating it? Well, they've decided they're going to continue to manipulate it to push prices higher. Number one is a portable mortgage.

This is what was proposed. The proposal allows borrowers to port their existing mortgage and their interest rate from one house to another. Okay, this was proposed. Obviously, you know, this would require congressional approval, Fanny and Freddy loans.

And right now we're seeing about 70% of mortgages would really benefit from this. Mortgage holders, you know, have a 5% rate or lower. So you can see here on this chart, this is the 30-year fixed mortgage rate. Ever since 2022, we saw the rates hike by the Fed and we saw mortgage rates follow and they moved up to seven and even 8% and now they've kind of trailed off and have normalized around 6.5% over the last year or so.

And so here's the problems with the portable mortgage. Number one, it does nothing to help young buyers who purchase in the last two to three years at a six or 7% rate if they if they were able to do this retroactively, right? There's a there's a debate whether they can actually do that retroactively or just be for new loans that they're originating. But if it was retroactively, it would do nothing to help those people who already purchased because their rate is already is already higher.

Number two, it does nothing for renters. Okay? So most of the people who are renting who need to purchase, it does not help them at this current time to make it more affordable for them to actually purchase. And it dispenses the buyers from 2020 and 2021 who were basically the low rate lottery winners that got the two to three% interest rate that they would be able to move with them if it does go retroactively.

I think it's a creative idea. I I mean it would definitely benefit me and it would benefit people who purchase during that time period if they do it retroactively but you know overall and it would create a lot of mobility between houses and make a lot more transactions occur. So a lot of people would probably enjoy this type of portability though again it does not make things more affordable for the next generation. It makes it more affordable for the people who already own and have a mortgage and that's that's a huge issue.

Number two is assumable mortgages. Right? So this allows borrowers to assume the mortgage that exists from somebody else who already has a mortgage on their house. Okay?

So 23% of mortgages are already assumable. Those are usually the FHA and VA loans. And less than 1% of those mortgages get assumed every single year. So we already have this product.

They're talking about just extending it basically to conventional loans. And in the right situation, these can be incredibly powerful. But again, only less than one this already exists and less percent one than 1% of these mortgages are actually assumed. Why is this the case?

Number one, consumers don't know about it. They don't understand it. I'll be honest with you, neither do realtors. Realtors barely understand how the loan process works and how the servicesers work and all this information.

There are some really great ones out there who can help you figure out if a if a loan is assumable if you have an FHA or VA and they should be advertising that out there on the MLS. The other reality is again, not all loans qualify. So, the borrower must qualify for the loan as well as if they're you. And the the issue is is if there's a amount of equity above the mortgage that the seller has, how is that going to be financed?

Either the buyer will have to come up with a large down payment or a second mortgage or carry a seller carry. These are additional documents that would need to be done by the title company. It would take a lot more extra work for the real estate agent to package the deal together. And it just requires overall higher level of diligence down the line of who the borrower is, who the who the seller is in the deals and the relationship between the two because the buyer, if they did a seller carry, would have to pay the seller a monthly payment just like they do the bank.

So, it's a great tool when the stars align. Absolutely. But again, it doesn't fix the structural issue that prices are simply too high. This is just another case of financial engineering.

So, look at this. This is all borrowers assume um the mortgage is from another. So percent of close-end first lean mortgages outstanding by interest rate. This comes from the FHFA.

You can see that 6% rates, you know, looks like it's about 20% is above 6%. You can see, you know, 5 to 6% interest rate is about another 10%. You can see this down the line. And you know, again, it's not there's going to be loans that you won't want to assume because the interest rate is higher than what it was, you know, than than what you could get today by originating a new loan.

So, if rates go higher, then this assumable mortgage um will become more valuable to people, but it just depends on the on the circumstance and what rate you got. Number three is 50year mortgages. Okay, so this is what really happens on the 50-year mortgages. Okay, it's sounds great.

You're going to save, you know, a couple hundred bucks per month. Our estimates is about $17 to $127 on a $500,000 loan, right? That's your monthly savings that you get to keep in your pocket versus paying the bank and your payment. However, the longer loan terms cost lenders more in duration risk.

So, because you're changing it from a 30-year to a 50-year, the interest rate will be higher, usually by about 50 bips above the 30-year. So, you're going to be paying a higher interest rate and over the life of the loan, you're going to be paying way more interest uh basically double what you would pay in a 30-year mortgage to the bank. You're, you know, basically paying for the the home three times when you're doing a 50-year mortgage. So, you are committing to half of a century of debt when you purchase this property.

And there are tons of issues in holding costs that I want to talk with you. So, the number one issue is that the first 10 years of a $500,000 50-year mortgage, you only pay down $18,000 on principal because of the way that amortization works. And a lot of people don't know how those tables look. Go ahead and Google it, look it up, figure out, okay, you when you're paying your mortgage, the majority of your payment goes to interest first and you get a small small small chunk of principal that's paid down.

Well, that is the case when you when you extend the loan term out 50 years, you're paying smaller and smaller portions of principal and more and more and more of interest on those initial years. And people only stay in their house generally for 10 years. So, let's say you bought a $500,000 house on a 50-year and you pay $18,000 in principle. Well, you have other costs of holding the property.

It's a real asset. It depreciates, right? So transa trans transaction costs round trip for buying and selling can be up to $50,000 on this house. Up to 10%.

Why? Because it costs about 3 to 4% going in. You have closing costs, title costs, loan costs, all these costs going in. And then you have to pay when you sell real estate agent commissions and closing costs.

Again, altogether that's about 10%, right? $50,000 right there. Your holding costs are significant. This is about 3 to 5% of the house's value for repairs, upgrades, and maintenance that you put into the house every single year, right?

Your HVAC goes out, you need a new roof, um something breaks, the plumbing goes bad, you're going to be replacing stuff non-stop in your house and potentially upgrading it. So, you're going to have way more than $18,000 worth of, you know, that you're putting into the house. So, this isn't a freebie by any means. It's not going to pay the principal down enough and you could easily be underwater in 10 years by pulling out this mortgage and you're paying more on your interest rate.

So, I do like the idea of a 50-year mortgage, right? It creates um a little bit more mobility and and for people to to move about. So, one of one of the things you could do instead of a 50-year mortgage is just simply rent, right? You have the mobility.

You're uh the young households can move freely without absorbing all these transaction costs and holding costs. I honestly think at this point in the housing market, we should see more people be renting uh and waiting for prices to come down than buying into this because it is not as good of a deal that it looks like on on the surface for 50-year mortgage. Now, it might be good for investors who invest for cash flow and that might be the number one benefit, but there that's just the problem with this policy is you're going to have more investors now gobbling up those homes that should be purchased by first-time home buyers because the math doesn't make sense for them. And here's another chart just to show you the negligible benefit for um for the 50-year mortgage.

And it's a great benefit for the bank. So, look at this. This is the savings for a 50-year mortgage. Your monthly payment is only slightly smaller.

So, there's the 2212 would be your payment for a 30-year fixed. If you were to get the 50-year fixed with a 0.5% increase in your interest rate, right, from 6.3% to 6.8%, your payment is not much less. It's It's literally $127 less, you know, for for the payment and your savings. No, it's $116 as your savings.

I mean, this doesn't even make sense, guys. You're going to double your debt burden to be able to save $116 a month on your monthly payment for your house and increase your interest rate from 6.3 to 6.8%. It makes no sense. Please be very careful for for getting into this.

Again, I appreciate trying to find creative solutions to make things more affordable, but it doesn't make it more affordable. It makes it more accessible and they're two very different things. Another proposal that we're seeing out there is the Florida no property tax. Okay, so this is proposed by Dantis.

He says primary residences will pay no uh property tax. Of course, there'll still be property taxes paid by investors or non um non- primary occupied homes uh or unoccupied homes. It sounds really nice on the surface. Nobody likes paying taxes.

I totally get that. But, you know, local taxes for the county go to pay for really important things like schools, you know, your fire department, your police department, things like that. And this actually the no property taxes a double whammy for renters. And the reason why is that there's going to be if this was proposed and went through and is getting voted on in November, there'd be a $50 billion revenue gap for the counties that would have to be made up with a sales tax.

So, not only are renters not getting the benefit of no property tax, but now they're going to be taxed more by adding like what's likely a six to 7%, you know, local county tax, sales tax. So, again, owners get the benefit and the renters get the double double whammy uh and and have to pay this sales tax. So, again, it does nothing to help the next generation of home buyers as they are currently priced out and unable to purchase. Are unable to save enough money to be able to get a down payment to purchase a home.

And these are not solutions that are really going to help them. The other one that came through is another one uh is is dropping the 620 credit score. This came across my desk. I was blown away.

This reminds me of 2008. You know, try to make it more accessible to these folks who are just on the fringe who who are just able to buy. It's the same thing with a 50-year mortgage. Just on the fringe, just able to buy.

Let's see if we can make them buy by making the payment a little bit less. The problem is that this sets up more risk down the line. The credit scores are already manipulated higher in a lot of cases. And unfortunately, it does bail out the builders who are at the peak of the market and overbuilt in some areas.

And that's what they're trying to do. They're trying to drum up demand from these fringe buyers to get them to act and execute and uh contract with them. But it does nothing to help these buyers because it's not a credit score issue. It's that they're priced out because the price is too high.

So again, the administration is focusing on every aspect of real estate except for letting the prices just revert back to normal. And I think that is wrong. So here's the here's the post, right? Fanny May set to drop at 620, credit score minimum.

Mortgage giant will instead use its own analysis of risk factors. They're just going to make up some whatever formula, kitchen sink formula. Officials say they're easing barriers to borrowing, which is a huge red flag at the end of a market cycle. It's just the latest series of policy changes aimed at creating home ownership opportunities in the United States.

No, it doesn't create home ownership opportunities. It creates mortgage ownership opportunities. That's completely different. It's a benefit to the banks, the builders, and the developers and the the people who buy on the margins are going to be completely underwater if the market turns south right after they buy.

And each piece of data that we're seeing going out there, so that's the fi five pals. Here's some data that's come out that's that's gone around the median age of the US home buyer since 1981. You can see that it's just completely skyrocketed in terms of the age. And the interesting thing about this chart is the same people who were buying 20 years ago, they were 39 and now they're the same people who are buying now at 59.

So they hit the lottery in terms of the timing of being able to purchase and get in and out of the market. And the policies are not doing anything to help that red line go lower, right? So that red line is the first-time home buyers. The average age is 40 years old, which, you know, people are because they don't have the the income.

They're not, you know, starting a family. They're not buying a house. They're not moving it forward with their life and progressing. It's causing huge issues that's leaving them behind.

And so I think that this will continue if these policies come through. I don't think it's going to get those fringe buyers who are in their 40s off of the pot and go buy a house. Uh because the again the financials just don't make sense when they try to engineer it. And look, I mean, we can change the term of anything, the longevity, the duration of your loan to literally anything.

Why not 5,000year mortgages? Why not, you know, credit cards that have 30 years, right? It's going to reduce the payment. So, it again, a term, changing a financial term does not make something more affordable.

I think that's a ploy. Affordability means it's reasonably priced and within one's financial means. In other words, a person can pay for it without excessive financial hardship. They're already in hardship and you're just trying to get them into more hardship.

That's my opinion on these policies. I don't think they're good for consumers. I don't think they're good for America long term. And I'm disappointed to see the policies that are coming through.

And frankly, there's a lot of push back. I'm not the only one who thinks this, but there's internal chaos to this spaghetti method. And there's no diligence on these policies. So, it looks like there's some people who are pushing back against PY, who's uh Bill PY of PY Homes, and he is the FHFA director who is working on policy with Trump on the housing market.

And he is getting a ton of backlash on these policies that are just being thrown out there, being put up on uh proposals. I really encourage the administration to slow down, do the diligence, talk to some people who are actual experts in the field uh versus people who are just talking heads and figure out if you can get somebody who really understands how can we really drive affordability, which unfortunately it's like how do you just let prices fall without intervening and you just have to watch the pain? It needs short-term pain for our long-term gain. I'd love to hear from you on these five different policies.

Should the government continue pumping assets through financial engineering? Just they're getting creative on trying to manipulate the consumer. What's new? What happens if the government actually lets the market reset?

For example, that you know the Federal Reserve currently holds three $2.3 trillion of mortgage back securities. If they didn't have those mortgage back securities on their balance sheet, we would likely see interest rates near 10%. What would the market look like in that point? So again, the Fed has come in and manipulated.

The government is coming in and trying to fi manipulate the market as much as possible to continue to drive it up and it's pricing out the next generation. I don't think that's good and it's going to leave out a bunch of people. And by the way, not only is it good, but it's going to mean revert at some point. There's going to be a breaking point in the market.

And I think it's going to happen in the next few years where the consumer is just completely fed up and there's going to be some resistance to these type of policies that are kind of overwhelming. So, love to hear what you think. Are you frustrated with these policies? Do you like any of these policies?

And is there something that I did that I did not comment on that you thought I should have commented on? All right, thanks so much and I'll see you next