A bold intervention meets a stubborn reality
President Donald Trump has made housing affordability a visible priority in his second term, unveiling a series of aggressive measures aimed at reviving activity in a market stalled by high mortgage rates and limited supply. But according to a recent analysis from Morgan Stanley, the Trump housing market plan is unlikely to deliver a meaningful breakthrough for buyers in 2026.
In a research note dated January 18, Morgan Stanley strategists James Egan and Jay Bacow described the administration’s actions as “modestly helpful” at best. While recent policy announcements have pushed mortgage rates slightly lower, the bank argues the underlying constraints on housing supply and turnover remain firmly in place.
The administration’s central move directed government-sponsored enterprises Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed securities. Markets responded quickly, with mortgage spreads tightening by about 15 basis points and the average 30-year fixed rate briefly falling below 6 percent for the first time since 2022.
Morgan Stanley acknowledged the immediate impact but cautioned that financial markets have already priced in most of the benefit, limiting the policy’s longer-term effectiveness.
The lock-in effect remains the central obstacle
The firm’s core concern centers on what analysts call the lock-in effect. Roughly two-thirds of existing U.S. mortgages carry rates below 5 percent, meaning millions of homeowners have little incentive to sell and refinance at higher borrowing costs. Even with rates easing into the high 5 percent range, the financial penalty of moving remains substantial.
Adding to that constraint, Apollo Global Management chief economist Torsten Slok has highlighted that about 40 percent of U.S. homes are owned outright with no mortgage at all. That dynamic further reduces turnover and keeps existing inventory off the market.
The Trump administration has publicly criticized Federal Reserve Chair Jerome Powell, arguing that monetary policy has kept borrowing costs unnecessarily high. However, Morgan Stanley noted that even as the Fed has lowered benchmark rates since late 2025, mortgage rates have declined only marginally.
From the bank’s perspective, rate cuts alone cannot overcome the structural incentives that encourage homeowners to stay put.
Demographics reshape the housing equation
Beyond interest rates, demographic forces are also weighing on the effectiveness of the Trump housing market plan. Older homeowners, particularly baby boomers, control a growing share of household wealth and housing equity. Many are choosing to age in place or downsize into smaller homes that might otherwise serve as entry-level options for younger families.
At the same time, household formation among younger Americans has slowed. Lower birth rates and an aging population have reduced the number of families with children compared with the mid-2000s peak. Economists argue this makes large-scale homebuilding less attractive, even as affordability pressures persist.
Moody’s Deputy Chief Economist Cristian deRitis recently said the U.S. is unlikely to “build its way out” of the housing shortage, given the demographic outlook. Any adjustment, he suggested, is likely to be gradual, leaving many older millennials effectively locked into their current housing situations.
Why lower rates may not unlock supply
Morgan Stanley expects only a modest improvement in housing activity as a result of the administration’s intervention. The firm trimmed its year-end 2026 mortgage rate forecast from 5.75 percent to 5.6 percent, a change it believes will lift existing home sales only marginally. Its forecast for home price growth remains unchanged at about 2 percent annually.
The bank also dismissed the idea that banning large institutional investors from buying single-family homes would significantly improve affordability. Institutional owners, it argued, hold too small a share of total housing stock to meaningfully influence national prices and have already been reducing exposure.
Looking ahead, Morgan Stanley outlined several technical levers that could further ease mortgage rates, including lower guarantee fees from the GSEs or regulatory changes that increase bank demand for mortgage assets. Even combined, those steps might shave another 50 basis points off rates, still far from the 4 percent levels common in the 2010s.
The conclusion is sobering. Housing affordability, the bank said, reflects deep structural imbalances between prices, incomes, and financing costs. While policy can help at the margins, there is no single fix. As Morgan Stanley put it, the U.S. housing market faces a problem “that lacks a silver bullet.”
