While minor policy tweaks like fee adjustments could lower mortgage costs by 10-15 basis points, more transformative changes are being considered. Allowing homeowners to take their existing mortgage to a new home ("portability") could have a much larger impact on housing market liquidity, but implementing such a change retroactively is deemed extremely difficult from a legal perspective.
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While falling mortgage rates will improve affordability, the "lock-in effect" for existing homeowners with ultra-low rates will persist. This will suppress the typical sales volume rebound, leading to an anemic 3% growth in purchase volumes, a historically tepid response to improved affordability conditions.
Proposals to allow homeowners to take their low-rate mortgages with them (portability) or transfer them to a buyer (assumability) cannot be retroactively applied due to contract law. Creating new mortgages with these features is possible, but the added benefits to the borrower would likely result in a higher, not lower, interest rate.
The buy vs. rent calculation varies globally due to different mortgage market structures. The US preference for 30-year fixed rates keeps borrowing costs high, while Hong Kong's floating short-term rates can make buying cheaper. The decision depends as much on financial product structure as on rates.
The FHFA has updated its rules to allow lenders to use newer credit scoring models, like VantageScore 4.0, for mortgages submitted to Fannie Mae and Freddie Mac. This breaks the monopoly of an outdated 1990s-era model and can expand homeownership access to millions, particularly in rural communities.
The core problem in real estate is not slow paperwork but the structural separation and misaligned incentives between the finance, legal, and sales sectors. This creates massive friction, akin to running an e-commerce site with a separate marketplace, payment gateway, and logistics.
A significant housing market recovery requires a substantial and sustained improvement in affordability. Analysts estimate a 100-basis-point drop in mortgage rates (e.g., to 5.5%) is needed to trigger a meaningful pickup in sales. However, this growth is not immediate; sustainable increases in sales volumes typically materialize a full year after the affordability improvement occurs.
A major driver of today's housing scarcity is that homeowners, particularly Boomers, who refinanced into sub-3% mortgages have no financial incentive to ever sell. This seemingly positive economic condition has had the negative side effect of locking vast amounts of housing inventory in place, worsening the supply crisis.
The gap between existing mortgage rates (under 4.25%) and new rates (over 6.25%) is over 200 basis points. This spread, which disincentivizes homeowners from selling, has persisted for three consecutive years. Historically, the gap only exceeded 100 basis points for a total of eight quarters over the past four decades, making the current situation a major anomaly.
A significant cause of today's housing inventory shortage is that homeowners are locked into low-interest mortgages. "Portable mortgages," which are being actively evaluated by the FHFA, would allow homeowners to transfer their existing mortgage to a new property, removing the financial disincentive to move and potentially unlocking market liquidity.
Three-quarters of US household wealth is in homes. BlackRock's Rick Reeder argues that a healthy housing market is critical for the broader economy, as it unlocks labor mobility (allowing people to move for jobs) and creates construction jobs. Lower mortgage rates are key to stimulating this velocity.
