Mortgages Won't Fix America's Housing Math Problem

9.3%. That's how much pending home sales collapsed in December, marking the steepest monthly decline since April 2020 when the world was shutting down. While mortgage rates have been on a rollercoaster—briefly touching 2022 lows before climbing again—prospective homebuyers are left more confused than ever about their chances of actually buying a house.

The housing market has become a policy playground, with officials tossing out proposal after proposal to make mortgages easier or cheaper to get. But there's an uncomfortable truth that nobody seems to want to hear: you can't solve a math problem with financing gimmicks.

December's Reality Check

The National Association of Realtors (NAR) data caught everyone off guard. After several months of modest improvement in housing activity, economists had allowed themselves some cautious optimism. Mortgage rates were drifting lower. Home prices were growing at a slower pace. The spring selling season was approaching.

Then December's numbers arrived like a bucket of cold water. The decline was broad, hitting all four regions of the country, with three posting double-digit declines. Even NAR's chief economist acknowledged the uncertainty, saying it's unclear whether the figure represents a temporary blip or the beginning of something worse.

Winter data can be tricky to interpret given holiday schedules and weather disruptions. But even accounting for those factors, this was the worst December on record going back more than two decades.

Creative Solutions, Complicated Consequences

That same day, President Trump outlined his housing agenda at the World Economic Forum in Davos. The proposals are creative, if nothing else: 50-year mortgages, portable mortgages, and a ban on institutional investors. Each comes with significant complications that housing economists say could backfire.

Take the 50-year mortgage the administration has been exploring. It would reduce monthly payments by a few hundred dollars—appealing to cash-strapped buyers. But homeowners would pay dramatically more in total interest over the life of the loan, potentially adding hundreds of thousands of dollars in costs.

Portable mortgages present a different problem. They'd help existing homeowners who locked in low rates before 2022, letting them transfer their interest rate to a new property. But they'd widen the gap between those lucky borrowers and first-time buyers who have no rate to bring with them. Economists warn the policy could actually push prices higher by giving repeat buyers more purchasing power.

The proposed ban on institutional investors sounds appealing, especially to anyone who's lost a bidding war to a faceless LLC. But the data suggests these mega-landlords own only about 2% of single-family rentals, and they've already slowed their purchasing significantly as rates have risen. It's a satisfying villain, but something of a red herring.

The Math Problem No One Wants to Solve

The uncomfortable truth beneath all the policy debates is that the United States has a housing shortage, and there's no quick way to fix it. By some estimates, the country needs millions more units to meet demand. Building them will require action at state and local levels, where zoning laws and permitting processes often make construction slow and expensive.

This is why many economists greet mortgage-focused proposals with skepticism. Lower rates and longer terms might help individual buyers at the margins, but they also risk inflating demand without adding supply. When more people can afford to bid on the same limited number of homes, prices tend to rise rather than fall.

The message from housing economists has become almost a mantra: it's the supply, stupid. The affordability crisis exists because there aren't enough homes to go around. Changing loan terms doesn't change that math.

It's also a much harder problem to solve. Flashy mortgage proposals can be announced from a podium in Davos, but building more homes means fighting through zoning laws and permitting battles state by state, county by county, city by city. There's no single lever to pull, no executive order that conjures houses into existence.