Will the Trump Administration’s Affordability Policies Jump-Start the US Residential Real Estate Sector?

No. The proposed policies are unlikely to swiftly resolve the challenges facing US residential real estate. While recent proposals may offer marginal support, they are not significant enough to improve deteriorating housing affordability. Given that most policy measures do not meaningfully address the core issues—limited supply and elevated mortgage rates—we do not expect a significant improvement in sector activity. As such, we continue to favor select opportunities in real estate credit and private residential real estate with compelling risk-adjusted returns and strong structural supports.

The US residential real estate sector remains a weak spot in an otherwise resilient economy, with residential investment contracting at a 4.4% annualized rate through the first three quarters of 2025. Affordability has worsened due to high home prices, elevated mortgage rates, and tight credit, all of which have dampened activity. Recent Federal Reserve easing has helped stabilize the market, lowering the 30-year mortgage rate by about 170 basis points since late 2023. However, a sustained recovery is likely to require a sharper decline in rates or a significant increase in supply, both of which are unlikely. Supply-side reforms are difficult to implement, and a substantial drop in rates does not appear likely, given the current macro environment. Mortgage rates are closely tied to long-term Treasury yields, which have limited room to fall unless the Fed eases more than expected or growth expectations weaken. Additionally, the spread between mortgage rates and Treasury yields has moved back near their historical average, leaving little room for further compression.

In response, the Trump administration has proposed measures with the goal of improving housing affordability, such as restricting institutional ownership of single-family homes and directing Fannie Mae and Freddie Mac to acquire $200 billion in mortgages. Several other potential ideas were floated as well. However, these policy interventions are unlikely to overcome the sector’s headwinds in the near term. For example, a ban on institutional investors would face legal challenges and have little immediate effect on supply, as they own less than 1% of single-family homes. The planned $200 billion in mortgage purchases may exert some downward pressure on rates, but the scale is modest compared to the Fed’s $2.3 trillion in mortgage-backed securities (MBS) purchases across the three previous quantitative easing programs. With the Fed still unwinding its MBS holdings and mortgage spreads near their historical average, these factors may further limit the impact of government-sponsored enterprise (GSE) purchases.

For investors, the proposed policies are unlikely to materially change the outlook for most asset classes tied to US residential real estate. Homebuilder and home improvement stocks, after trailing the broader market by more than 18% in 2025, have recently rebounded, with the S&P Homebuilders Select Industry Index up 15.8% year-to-date versus -0.1% for the S&P 500 Index. Still, the outlook remains challenged. These stocks are highly sensitive to mortgage rates, and with affordability still stretched, sales volumes are flat, and price appreciation is fading. Revenue growth is under pressure, with 12-month forward earnings per share for homebuilders at -1.6% versus 15.1% for the S&P 500. Elevated input costs, driven by tariffs and labor shortages, have further compressed margins. Despite these headwinds, valuations are not particularly cheap, suggesting limited scope for sustained outperformance.

Within credit, residential agency MBS remain among the most attractive segments in the investment-grade universe. In 2025, agency MBS returned 8.6% versus 7.3% for the Bloomberg Aggregate Index, benefiting from tightening spreads and lower volatility. While upside is now more limited, newly issued agency MBS still offer both competitive yields and superior risk-adjusted returns compared to corporates, given their higher credit quality. Although the ultimate impact of new policies remains uncertain, the administration’s affordability push and planned GSE mortgage purchases may provide a modest backstop for spreads and help reduce downside risk. With corporate bond spreads historically tight, agency MBS stand out as a high-quality alternative should credit spreads widen.

Among other segments, REITs and private funds focused on single-family rentals face the most direct policy risk, but most have already shifted to build-to-rent strategies, reducing their exposure to restrictions on institutional buying. The affordable and apartment sectors are two areas we continue to favor, given limited policy risk and supportive structural tailwinds, including persistent demand for affordable housing and the elevated cost of owning versus renting.

In sum, we do not expect the Trump administration’s affordability push to meaningfully improve conditions in the US residential real estate market. Given this view, we believe the best tactical opportunity is in current-coupon agency MBS, while private residential real estate segments like affordable and apartment properties will continue to benefit from strong structural supports.