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Outside of necessary wars and appropriate law enforcement, violence is never the answer. If it were, everyone in the White House would understand why Treasury Secretary Scott Bessent once wanted to punch Bill Pulte in the face.
On this week’s episode of the soap opera that is the swamp, the primary antagonist was Pulte, the nepograndbaby construction heir whom President Donald Trump appointed as his director of the Federal Housing Finance Agency and chairman of Fannie Mae and Freddie Mac. With the House back in session to hopefully make progress on the Senate-passed ROAD to Housing Act, Pulte decided to throw a wrench in the GOP’s massive victory over the Democratic Party’s record-setting government shutdown. What if, posited Pulte, instead of focusing on why median home sale prices are up 30% in the last five years, the government simply forced lenders to offer 50-year fixed mortgages?
According to Politico, Pulte blindsided the White House by proposing the 50-year fixed mortgage to Trump over a 10-minute pitch at Mar-A-Lago.
THE SENATE TRIES TO DO WHAT THE FED CANNOT: SOLVE THE HOUSING CRISIS
“The thing that became clear from this latest episode — if it wasn’t already clear — is that Bill Pulte doesn’t know the first f***ing thing about how the mortgage markets operate,” an unnamed White House source told Politico. “After publicly humiliating the president with his moronic 50-year mortgage plan, it’s safe to assume that his days are numbered.”
Not one to recede quietly into ignominy, Pulte followed up his 50-year fixed mortgage proposal with a second and utterly irreconcilable pledge to pursue portable mortgages. This proposal is less intellectually offensive in theory, but it is functionally impossible to reconcile with fixed mortgages.
The 50-year fixed mortgage proposal is indeed a mathematical monstrosity. But as a policy intended to make housing more affordable, it’s an even more egregious Band-Aid that would ultimately achieve the opposite of that goal. The portable mortgage works in other countries, but Pulte’s suggestion of a physically portable mortgage in tandem with an even longer fixed mortgage rate indicates that he is recklessly pursuing solutions that move markets and rattle investor confidence without understanding what he’s doing.
Let’s start with the actual math, which begins with understanding the anomaly of the American mortgage market.
Unlike other countries, which almost exclusively offer variable mortgages to residential consumers, the standard American mortgage is fixed over a 30-year or 15-year period. But, to lock in an interest rate, American mortgages require borrowers to lock in their debt into a single property. Because the New Deal incentivized mortgages to be sold through government channels to a secondary mortgage market, mortgages generally do not live on a bank’s balance sheet. Instead, they are repackaged into mortgage-backed securities, and not even the Fannie Mae chairman can allow the original borrower of a mortgage to swap out various properties as collateral while maintaining that preferential fixed rate.
There’s currently a 50-basis-point spread between the average 15-year and 30-year fixed mortgage rates (5.82% and 6.32%, respectively). It’s safe to assume that a 50-year mortgage rate would be, at minimum, another 50 bps higher than the 30-year. Assuming a 50-year mortgage rate of 6.82%, let’s compare how different home ownership would look across the three mortgages.
If I put down the standard minimum 20% of the median home price of $410,800, taking out a 15-year fixed mortgage would necessitate a monthly payment of $2,737.50. But I would only pay $164,110 in interest payments over the lifetime of the loan. For a 30-year fixed mortgage, I would lock in a much lower monthly payment of $2,029.30, but I would pay $410,908 just in borrowing costs over the lifetime of the loan.
Now, let’s consider paying 80% of the $410,800 home with Pulte’s 50-year fixed mortgage with a conservatively estimated rate of 6.82%. I would lock in a monthly rate of $1,883.30 — a little better than the 30-year monthly, but not as much of a marginal benefit as between the 30-year and the 15-year — but I would pay an eye-watering $801,280 in interest over the half-century lifetime of the home.
Because amortization requires borrowers to allocate larger shares of their earlier monthly payments to paying off their interest costs first, if I chose to sell my home 10 years into my 50-year fixed mortgage, I would have only paid an extra $2,824 in equity after the down payment, bringing my total percentage of the home owned to almost 21%.
Pulte thinks the solution to this equity problem is to make the mortgage portable. The legal problems posited by this proposal are obvious: the securitization contracts brokered when the mortgage is sold and repackaged on the secondary market explicitly forbid exchanging one piece of collateral for another, which would lead to a liquidity and legal crisis, bringing the secondary market that makes American mortgages so cheap to a standstill.
Portability would also make the very nature of a fixed-rate mortgage unprofitable for lenders and only beneficial to the disproportionately wealthy and elderly class of Americans who already own homes. The problem, as it has been for a decade now, is an insufficient supply, not an insufficient demand. At barely 1%, the homeowner vacancy rate has remained close to a half-century low since the start of the pandemic, and the 7% rental vacancy rate is not much better. When the country had far fewer people in the 1970s, we built 19 million new housing units. But in the 2010s, we built less than half that.
New housing starts have slowed for decades, but precipitously so after the Great Recession. Whereas the Census Bureau estimated there was one housing unit for every 1.79 people in 2008, there’s currently only one housing unit for every 1.835 people. That may not seem like much of a difference, but extrapolate that out to more than a decade of new family formation and population growth, and we have an estimated 7.2 million homes missing. A Zillow analysis of newly released Census Bureau data from 2023 found that America’s total housing deficit reached an all-time high of 4.7 million units, as even though 1.4 million new homes were added to the market, we created 1.8 million newly formed families.
The cause, of course, is too much government, not too little. Even before COVID-19, building multifamily housing, even as modest as two-story townhomes or duplexes, was illegal in 75% of land zoned for residential property. Zoning codes often also ban workarounds, such as accessory dwelling units (think guest homes for a grandparent), single-room occupancies (think rooms rented out for a boarder), and manufactured homes (think low-cost trailers or mobile homes). On top of restrictions for what a homeowner can do on their property, zoning laws can also restrict minimum lot sizes, explicitly pricing out lower-income earners who would be happy to own 800 square feet instead of a lot for a McMansion with a patio.
The Houston metropolitan area, which authorized 70,000 new housing permits in 2023, nearly twice as many as the entire tri-state area, has seven times as many permits as metro Boston, and a whopping 10 times as many as the San Francisco metro area. In turn, this corresponds to lowered costs of buying said housing: The median home in Houston is $300,000, which is one-fifth of the price of the median Bay Area home.
The obvious solution here is to use federal carrots and sticks to influence the local zoning laws that have turned California compounds into lonely medieval fiefdoms surrounded by the fleeing middle-class masses, while Texas and Florida have unleashed prosperity, new wealth, and property creation. And in red states, governors should not run away from the property taxes that are eminently less harmful to economic growth than corporate, consumption, and income taxes, but instead consider transitioning property taxes into land value taxes. Unlike most property taxes, which penalize property owners for improving their developments and adding density to their land, land value taxes only tax the inherent value of a piece of land, leading them to boost housing supply while disincentivizing investors and pensioners from owning properties that could be otherwise used for primary residents.
The Federal Reserve can lower the federal funds rate, but it cannot lower “the interest rates” as they pertain to mortgages: when the central bank slashed the federal funds rate by 100 basis points in 2024, both the average 30-year fixed mortgage rate and the 10-year Treasury yield rose 100 basis points.
PROPERTY TAXES ARE ACTUALLY THE LEAST BAD TAX — EXCEPT FOR ONE
Pulte can manipulate mortgage terms, but he cannot bring down the actual price of housing: recall the consequences of when former President Joe Biden tried to do so. When Biden began his presidency, the median sales price of a home was $369,800, and the average rate for a 30-year fixed mortgage was 2.7%, incurring total interest payment costs of $136,131.20 over the loan term. By the end of his presidency, Biden’s inflationary fiscal policy, designed to improve affordability, led to a median home sale price of $417,700 and an average 30-year fixed rate of 6.87%. The net borrowing costs over the lifetime of an average 30-year fixed mortgage taken out on 80% of the median home were nearly half a million dollars.
It is not Pulte’s job to fix Los Angeles’s garbage zoning laws, but if he considers it his job to improve housing affordability by distracting markets with poppycock mortgage proposals and Congress from actually passing legislation to incentivize local reform, he is failing. The only way to make housing more affordable is to lower home prices, not monthly mortgage payments. That is a problem with one solution: supply, not demand.
