Trump Unveils the 50-Year Mortgage
Donald Trump wants 50-year mortgages.
Will you be paying your mortgage when you’re a hundred and three.
Last week Trump floated a new 50 year mortgage, with housing czar Bill Pulte quickly confirming they’re working on it.
The logic is 50 year mortgages lowers monthly costs -- it splits the principal over more years. So young people can afford a home.
This matters because right now young people very much cannot afford a home.
The median household first time homebuyer just hit 40 years old.
Another study found that while half of under-30s were married with a house in 1950, today it’s just one in eight.
Meanwhile, across all ages the median family spends almost 40% of their monthly income on mortgage payments.
50-Year Mortgages Raise House Prices
The problem is going to 50 years doesn’t do much to costs because the extra time’s really far in the future.
So you’re looking at maybe 15% cheaper: A $2,500 monthly nut goes to $2,100.
In return you’re signing for a lifetime of debt bondage where nominal interest payments come to double the price of the house itself.
As Adam Taggert puts it, this turns home-ownership into debt-serfdom.
Worse, longer mortgages actually raise house prices because buyers bid up prices.
Going by history when we went from 10-year to 30-year mortgages this would raise house prices 10% to 20%.
In other words, the lower payments are completely cancelled by higher prices.
Fortunately for Trump, the prices won’t rise overnight -- history says 5 or 10 years.
So he gets lower costs in time for the midterms. Even if long run mortgage payments cancel it, leaving you with a 50-year debt.
History of the Long Mortgage
The 30 year mortgage was hatched by 1930’s dictator Franklin Roosevelt after he screwed the economy so bad nobody could buy anything.
Before FDR mortgages were 10 or even 5 years. With down payments around half of purchase price.
Today, 89% of mortgages are 30 years. While down payments are often just 10% since taxpayers are guaranteeing the debt.
30 year mortgages did 2 things. They expanded home ownership from half to two-thirds -- not as much as you’d expect.
But they drove home prices to stratospheric levels: Houses went from twice annual wage to 11 times.
This is because the longer the term the bigger the loan. And going from 30 years today to 50 years makes it worse.
Add that to the lower payment bidding up prices and you get a perfect storm that gobbles up the initial savings.
Alternative Solutions to Housing Costs
So what is the solution?
Deregulation helps: zoning, union rules, and environmental mandates could cut $80,000 to $100,000 off the cost of a house.
Deportations also help -- catch ‘em all and you cut houses by $30,000 according to an Urban Institute study.
But the big one is the Fed. Because artificially low rates make every asset go up, from stocks to gold to houses. They turn houses into an investment good with the premium to match.
This is great if you already own a home -- the house goes up more than the mortgage, you live for free.
It’s not so great if you’re in your twenties dreaming of starting a family.
What’s Next
After Dems swept last week’s elections, Trump’s looking for something big on affordability.
In the short run 50 year mortgages will help.
But in the long run they’ll drive home prices into the millions.
And 50-year debt-serfs into the tens of millions.
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More BS. Affordability will never be achieved without a budget surplus that is used to pay down debt and stop all deficit spending. Unfortunately, the most expensive expense most people have is interest, and many don’t realize it. Grasping at straws instead of making the necessary hard decisions. Entitlement spending must be curtailed, everything from healthcare, to the farm bill must be scrutinized.
Certainly, anything that increases housing demand will increase home prices. That's why the 50-year mortgage must be accompanied with policies that will increase the housing supply. But that's more of a local than federal concern.