How Trump’s $200 billion mortgage bond-buying move could reshape housing market and what it means for mortgage rates

Core Viewpoint - The U.S. President Donald Trump has directed Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds to lower mortgage rates and make homeownership more affordable [1][15]. Group 1: Impact on Mortgage Rates - The bond purchases are expected to lower mortgage rates and monthly payments, thereby enhancing home affordability [2][15]. - The strategy aims to narrow the mortgage spreads, which have been wider than normal due to various factors, including market volatility and economic conditions [3][15]. - Mortgage rates typically run about 1.8 percentage points above Treasury yields, but recent spreads have been wider, prompting the need for increased bond purchases [3][15]. Group 2: Current Market Conditions - The U.S. is facing a significant housing supply shortage, estimated between 1.5 million and 5.5 million homes, with JPMorgan estimating a shortfall of 2.8 million homes [6][15]. - Fannie Mae and Freddie Mac hold a combined $247 billion in mortgage bonds, which is relatively small compared to the $9 trillion mortgage-backed securities market [7][15]. - Over the past year, mortgage rates have decreased from the high-6% range to just under 6.2%, with spreads narrowing from about 2.65 percentage points to just under 2 percentage points [8][15]. Group 3: Market Reactions and Predictions - Following Trump's announcement, the average 30-year mortgage rate dropped 22 basis points to 5.99% [8][15]. - Analysts suggest that if the market tightens by 50-70 basis points, primary mortgage rates could fall into the mid-5% range, potentially increasing refinancing and purchase activity [10][15]. - There are concerns that lower mortgage rates could lead to higher home prices if housing supply remains constrained, as increased demand may allow borrowers to bid up prices [11][15].