As a new Congress takes shape, expert cautions that down payment programs drive up demand without fixing the supply shortage
The nation is still digesting a dramatic midterm election result that saw Democrats seize back control of Congress, a political earthquake whose likely impact on the economy – and the housing outlook – remains unclear.
The result gives Democrats a strong majority in the House of Representatives and clear breathing space in the Senate, likely ending President Trump’s hopes of governing during the second two years of his term with the same force as the first.
Housing policy hasn’t played a central role in Trump’s second term to date, overshadowed substantially by trade and foreign affairs – but as Polunsky Beitel Green’s Marty Green noted to Mortgage Professional America this week, housing is a bipartisan issue that’s unlikely to prove a major stumbling block even with government divided.
The next Congress will aim to tackle a national housing crisis that’s showing no sign of fading, with the affordability picture bleak and the market still in a deep freeze. Against that backdrop, focusing on ramping up home construction should be its main concern on the housing front, according to Oxford Economics’ lead US economist Bernard Yaros.
“The residential market – it’s still heaving under the weight of mortgage rates,” Yaros said Thursday. “I think that demand-side drag is a much bigger issue than any supply-side constraints.”
Homebuilding lurches from one crisis to the next
The Harvard Joint Center for Housing Studies’ latest State of the Nation’s Housing report shone a light on the dire outlook for homebuilding across the US, while Freddie Mac and the US Chamber of Commerce both estimate the housing shortage is well above 3.5 million units.
Realtor.com has the housing supply gap at 4.03 million as of 2025, and says the shortage is growing by about 50,000 units per year as construction continues to lag.
Homebuilder confidence, meanwhile, is plunging. The NAHB/Wells Fargo Housing Market Index (HMI), a gauge of how builders are judging the current outlook, has slipped consistently in recent months, falling again in October as sales expectations dimmed.
Yaros described the housing affordability crisis as a state and local issue rather than a federal one, although the federal government can also partner with states and localities to help improve zoning and laws around buildable lots.
And he cautioned that focusing on programs to spur homebuying could worsen the supply-demand imbalance at a time when he said construction should be the core government focus.
“Housing affordability is going to really be top of mind. And we’re probably going to see a lot more proposals that will support the demand side, which is not what you want at this time,” he said.
“You’ll see a lot of proposals, I think, on providing downpayment assistance – and yeah, that does help, but it just drives up demand. And if supply is limited, all that bleeds into is higher prices, which then sets people back further in terms of affordability.”
Don’t count on interest rate help from the Fed
Mortgage rates don’t move directly in line with Federal Reserve rate decisions, but they’re strongly influenced by bond yields – and financial markets often bake expectations of future Fed moves into their pricing.
The Fed is in a “tricky” place, according to Oxford Economics’ chief US economist Michael Pearce, with rate relief not currently seeming likely as the Iran war rumbles on and inflation concerns remain elevated.
Surging investment in artificial intelligence (AI), meanwhile, is also putting upward pressure on the inflation outlook.
“They’re in this tough place where they feel compelled to raise interest rates, but the parts of the economy that those rate hikes work on are already relatively weak and are unlikely to deliver much more in terms of disinflation,” he said.
Oxford Economics currently expects the Fed to maintain a hawkish tone in its coming meetings, and has pencilled in rate hikes for both December and March.
“They’ll need a bit of luck in terms of maybe the war coming to some resolution in 2027 and some supply response in terms of the AI supply chain… to bring that inflation back under control,” Pearce said.
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