Is the Government Cracking the Code to Housing Affordability?!

I feel like we’re living in a simulation.

Just two weeks ago, my newsletter celebrated the headline, “Mortgage Rates Finally Dip Below 6%.” Fast forward to this week, and rates have now climbed to their highest level of the year.

Don’t worry, though, there’s still plenty of positive news from last week. Let’s dive in and break it all down!

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Read time: ~5 minutes

Rates ended HIGHER compared to last week, and volatility was HIGH. Rates are creeping to the mid 6% range for most loan types without paying discount points. Paying discount points can get you in the low 6's.

Mortgage Rates Hit Highest Level of the Year

My Oh My, how quickly things can change! It was just a couple weeks ago that I was touting how rates had dropped to levels that we hadn't seen in years! The last time rates stayed under 6% for any meaningful stretch was back in the middle of 2022. It was a year of sub-6% rates and the moment heard around the world when Will Smith slapped the dickens out of Chris Rock. Those were the days....

Well, we all got slapped back to reality this week with mortgage rates surging past the 6% mark and supplanting itself in the mid 6% range at the close of market on Friday. We have one reason to blame for this spike in mortgage rates: the Iran war.

What makes the current environment so unusual is that many of the typical economic indicators are actually pointing toward lower mortgage rates. Job numbers have been weak, and inflation has continued trending toward the Federal Reserve’s 2% target. Normally, that combination (weak employment and cooling inflation) creates the conditions for mortgage rates to move lower. Nick and I believe if it weren't for the conflict in Iran, we would be well on our way to the mid 5% rate!

Clearly, not even mortgage-friendly economic data can save this market. The Iran war, and specifically the flow of oil, takes center stage and trumps all economic news. As long as the war drags on and the supply of oil is disrupted, expect mortgage rates to slowly grind higher.

Is the Government Cracking the Code to Housing Affordability?!

Finally, a government housing initiative that Nick and I can get behind! This past week, the United States Senate passed the 21st Century ROAD to Housing Act, one of the largest housing bills introduced in decades. The goal is straightforward: make housing more affordable by increasing the number of homes available across the country.

As industry professionals, we all know the real issue when it comes to housing: the U.S. simply doesn’t have enough affordable homes. Some estimates suggest the country is short by nearly 4 million housing units, which has played a huge role in pushing home prices higher. To help address this shortage, the bill includes more than 40 provisions designed to make it easier and faster to build housing.

One of the more interesting parts of the bill focuses on deregulating manufactured home construction. We all know, single family builders are building as fast as they can, but one of the biggest challenges in today’s market is cost. In many areas such as Columbus, it’s extremely difficult for builders to construct a new single-family home for less than $400,000. The traditional “starter home” in the $250,000 range simply no longer exists.

Manufactured homes solves this problem.

Factory-built homes can be produced much faster than traditional site-built homes and typically cost about half as much per square foot. Several states have already started relaxing zoning restrictions to allow more of this type of housing as a way to help address the housing shortage.

The bill proposes easing certain construction requirements for manufactured homes, which could allow for more flexible designs, such as adding a second story or a basement. In many communities today, factory-built homes face limitations simply because of outdated construction standards.

It will still take time for legislation like this to work its way through the full process, but it’s encouraging to see policymakers finally focusing on increasing housing supply. Manufactured homes might just be our path to increasing supply but also tackling affordability at the same time.

Banning of Institutional Buyers Gets One Step Closer

Another one of the big headlines from the recent Senate housing initiative was the proposal to limit large institutional investors from buying single-family homes. The reasoning is simple: if big investment firms can’t snap up houses, more homes should be available for families trying to buy their first property.

In theory, this sounds like a slam dunk proposal. However, we believe the actual impact may be smaller than many expect.

Large institutional investors (those owning 100+ homes) only make up about 3–3.8% of the single-family rental market nationwide, according to research from The Urban Institute. While these firms can affect certain local markets, the bigger issue driving high home prices is simply a lack of housing supply. We haven’t built enough homes to meet demand.

There’s also the rental market to consider. Many institutional investors develop and manage single-family rental communities, providing homes for families who aren’t ready or able to buy. Limiting this investment could reduce the number of rental homes built, potentially pushing rents higher in some areas. Pushing rents higher would be the absolute worst thing to do for an already fragile economy. 

At the end of the day, restricting investors may help in select markets, but it’s not a silver bullet for affordability. The long-term solution isn't limiting the number of homes for one specific entity to purchase. It's is building more homes, which we all know is the key to stabilizing both home prices and rents.

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