50 year Mortgages: Right Problem, Wrong Solution

Photo via NHabit Real Estate 

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In early November, President Trump and FHFA Director Bill Pulte began publicly promoting a 50-year mortgage option as a way to lower monthly payments and help households priced out of the market qualify for homes. Although the proposal is not yet formal policy, even entertaining such financial engineering as a “common sense” way to lower home prices misunderstands the problem of affordability.

In our divided political climate, one of the few things Americans agree on is that life is too expensive. Since 2020, the real cost of goods and services has increased by 25%. Although inflation has slowed since 2022, upward pressure remains on tariffed goods such as coffee, ground beef, and car repairs. In New York, Mayor Zohran Mamdani was elected in large part because he offered a “solution” to the city’s high cost of living. Even in the 2024 election, President Trump ran as the “fiscally responsible” candidate. That being said, neither Trump nor Mamdani has or will make life cheaper. President Trump’s issuance of tariffs has provided upward pressure on tariffed goods, while his Big Beautiful Bill has continued DC’s addiction to inflationary monetary policy.

If the country doesn’t fix its affordability crisis, it will be detrimental to our nation’s future. When politicians discuss various issues, they often tend to view them in isolation. Maybe the most sophisticated will argue for a policy based on its second-order consequences, but even that is too simplistic. To say economic policy and social policy are intertwined is an understatement. Economic policy drives social behavior. More expensive houses will inhibit younger, poorer couples from purchasing homes. If those couples don’t purchase homes, they are less likely to have children, have fewer opportunities to build wealth, and have a weaker connection to their community. 

Unfortunately, housing prices have already become prohibitive for young people. In a country where owning a home in your 20s used to be a rite of passage, people are now forced to wait until midlife to enter the housing market. The median age of first-time homebuyers is 40 years old, up from 32 during the COVID-19 pandemic.

President Trump’s push for a 50-year mortgage is being sold as a solution to this problem. To analyze whether this could be an effective solution, we must establish a few key premises upon which to base our assessment. 

According to the laws of economics, prices are set at the equilibrium of supply and demand of a certain good in the market. Now, determinants of supply and demand are numerous, but it’s important to always operate within this framework. To determine if 50-year mortgages will lower housing prices, we should ask whether they will increase the supply of or decrease the demand for housing. At a fundamental level, mortgages are a type of debt. You borrow from the future in order to take control of an asset (the house) today. You assume the benefit immediately, while spreading the cost out over an extended period of time. So why wouldn’t further lengthening mortgages help continue this benefit?

Increasing mortgage terms does nothing to affect the supply of housing in the market. Instead, it actually increases the demand for housing, as more capital is available to buy homes. If buyers can spend the same or less on a monthly payment, while getting the same or a better house, then the demand for homes will increase.

Instead of further financializing the American housing market, President Trump should look to cities such as Austin, Texas, for an example. Austin has successfully managed to absorb rapid population growth and booming job creation, while continuing to push housing prices down. Austin managed to increase the supply of housing at a faster rate than the demand for housing. So how did they increase supply? Austin’s city council undertook a sweeping overhaul of its land-use code. Minimum lot sizes were reduced, triplexes were permitted on previously single-family lots, and the permitting process was streamlined. Austin allowed the market to work. Austin’s reforms restored genuine price discovery in the market, allowing developers to build where it makes sense and buyers to gain access to more affordable housing.

It is excellent that the Trump administration is focused on housing unaffordability. Owning a home was once a fundamental part of the American dream. Getting married, buying a house, and having children were common steps towards adulthood. What was once a reality is now a dream. To make that dream a reality once more, America needs to find a way to build more houses and allow young people to start their lives.

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This article was edited by James Dougherty.