Morgan Stanley on how Trump policies affect housing affordability

"The government-sponsored enterprises' (GSEs) purchases of mortgage-backed securities (MBS) which began in 2025 but which Trump has directed Fannie Mae and Freddie Mac to accelerate have tightened mortgage spreads by about 15 basis points since the day after the announcement. That move briefly pushed mortgage rates below 6% for the first time since 2022. Still, the strategists only slightly revised their year-end forecast, now expecting rates to finish at 5.6%, down from 5.75% previously."

"The limited impact stems from the current distribution of mortgage rates: roughly two-thirds of mortgages still carry a rate below 5%, the strategists wrote. While affordability might be improved for the buyer, it won't necessarily unlock' substantial additional supply to be purchased. A potential ban on large institutional investors purchasing single-family homes would also have limited impact, the strategists said, as institutional ownership remains relatively small."

"Regulators could also reduce risk weights on conventional mortgages, which would increase bank demand for MBS. On the monetary policy front, new Federal Reserve board members could be more willing to end mortgage runoff from the Fed's balance sheet. The central bank has already helped the sector by cutting rates 75bps since September, contributing to an estimated 20-basis-point decline in mortgage rates."

GSEs began purchasing mortgage-backed securities in 2025 and acceleration of those purchases tightened mortgage spreads by about 15 basis points, briefly pushing mortgage rates below 6%. Year-end mortgage rate forecasts were modestly revised to 5.6% from 5.75%. About two-thirds of outstanding mortgages carry rates below 5%, limiting the potential for spread and rate changes to unlock additional supply. Policy options include reducing loan-level price adjustments, lowering Ginnie Mae mortgage insurance premiums, and cutting risk weights to boost bank demand for MBS. Federal Reserve rate cuts since September account for roughly 20 basis points of mortgage rate decline. Combined measures could lower rates by about 50 basis points.

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