50-Year Mortgage Is a Non-Starter as Housing Set to Grind Down

The presidential administration recently floated a trial balloon about providing 50-year mortgages as a way to aid the struggling housing sector. It deflated almost immediately upon its release. 

I hope this idea gets quickly assigned to the dustbin of bad policy proposals. Home ownership is a key wealth driver for middle income families and a critical part of the American dream. It should not have to be acquired via a 50-year rental agreement.

Besides, a 50-year mortgage will do little to alleviate the housing affordability crisis. As Wolf Street highlighted in an article this week, using the spread between 15-year and 30-year mortgages and assuming the same would exist between 30-year and 50-year mortgages, the monthly savings would amount to $91 a month on a $500,000 mortgage.

There also has been some talk about a Marshall Plan type effort to tackle home affordability. I believe this will come to little in the way of action. If Washington really wanted to help prospective homeowners, it would tackle out of control spending and deficits. This would lower the rates on long treasury bonds. This is what mortgage rates are largely tied to. A key reason that average mortgage rates are right where they were in the summer of 2024, before the Federal Reserve started its current easing cycle, which has brought down the fed funds rate by 125 BPS. Does anyone see either of the major political parties focusing on reducing government spending? Yep, me neither.

Existing home sales have been bumping along at the lowest levels since 1995 for three years now. The "locked in" effect is slowing ebbing, but still just over half of all mortgage balances have mortgage rates of 4% or less. In addition, anyone putting an existing home on the market has to compete with new home builds. This is getting increasingly difficult as home builders are providing substantial incentives like mortgage rate buy downs to move growing inventory.

These incentives can total 10% to 15% of the total home price. That is hard to compete against, and one key reason that profit margins are falling at major home builders. The average home selling price at Lennar (LEN) is lower this year than it was before the pandemic, due to these increasing incentive costs. This is the key reason I am very underweight home builders, and anything connected to housing within my portfolio.

Home sellers now outnumber home buyers by the largest amount in over a decade. This divergence is going to get worse before it gets better. Foreclosure starts rose 20% year-over-year last month. Now that COVID loss mitigation efforts have largely ended for FHA mortgages, I expect foreclosures to move much higher in 2026. In addition, mass re-migration is starting to have significant impacts in moderating and, in some regions, reversing rental growth. In turn, this should put more single-family houses, that were previously used as rentals on the market over time.

Finally, there is the 800-pound gorilla in the room. That is the accelerating rate at which Baby Boomers are passing from this earth. The largest generational cohort in American history owns just over 40% of all housing stock in the nation. Roughly 70% of those homes will come on the market as their occupants move on. This is going to be an increasing tailwind to housing supply and a headwind for home price appreciation over the coming decade.

In summary, everything is pointing to a continued moribund housing market in 2026. This will keep a key economic engine firmly in idle in the year ahead. I don’t see a housing crash on the horizon. That said, many regions of the country like Tampa, Phoenix and Las Vegas home prices should see 20% or higher declines from their peaks. Austin, Texas has already seen this happen. For the rest of the country, a slow grind down in housing prices over several years is my base case scenario.

At the time of publication, Jensen had no positions in any securities mentioned.