We all know the housing market has had its issues the past few years…

Housing prices soared in 2020, a trend that continued into 2022. A look at the Zillow Home Value Index – which uses data from Zillow to track typical home values – tells the story.

Between March 2020 and July 2022, the price of the average American home soared by about 40%. Then, things got worse…

As rates rose in 2022, so did mortgages. From around 2.6% in December 2020, a 30-year fixed climbed all the way to 7.6% by October 2023, a 20-year high.

On top of that, too many homeowner wannabes got their offers shot down too often. Many gave up entirely after a while, resigning themselves to rent until things settled down.

Well, that day might finally be here.

It took three long years, but it looks like the housing market is finally turning that much-awaited corner. While homes are still selling at all-time highs and the economy is still struggling, more sellers are now selling and mortgage rates are on the decline.

That’s why the National Association of Realtors® speculated last week that:

Real estate professionals may finally see a long-awaited surge in activity in 2026, with home sales poised for a potential double-digit jump.

Lawrence Yun, chief economist at the National Association of Realtors®, is forecasting a 14% nationwide increase… for 2026, following 2025’s stagnating levels. New-home sales are also projected to rise 5% next year.

Of course, that’s in comparison with 2025, which has been utterly dismal. The normally brisk spring season, from April through June, saw pending home sales hit a 13-year low.

Everyone knows more breakthroughs need to happen, including President Trump. A real estate guy himself, it makes sense that he would want to offer a solution to this continuing mess.

What doesn’t make sense, however, is the 50-year mortgage proposition he presented.

Most of you know I’m a Trump insider. I’ve known the man for years and even wrote a book on his real estate empire.

But I’m going to have to disagree with him on this one.

It’s a bad idea for almost everyone involved: buyers, lenders, and any real estate investment trust (“REIT”) that tries to cash in.

This idea should never be implemented. Not unless we want to repeat history in the worst possible way.

The Return of the Housing Bubble

Do you remember how badly the housing market crashed in 2008?

I do.

I lost my job, my livelihood, and practically my house because of it, all while trying to feed my five children. It’s not a time I want to repeat.

People tend to blame the big banks, the rating agencies, and the traders that took an otherwise safe asset (the mortgage bond) and levered it up. And, yes, they do deserve some of the blame.

But they weren’t the only guilty parties…

Without a shadow of a doubt, yes, banks were responsible for extending credit to individuals and entities they knew (or should have known) couldn’t afford it in the long run. But there were also elected leaders like Barney Frank, who pushed Fannie Mae and Freddie Mac into making subprime loans in the first place.

Then there were developers like me who kept building and building on the supposition that the bubble would never burst. And we can’t forget everyone who bought homes even though they couldn’t really afford them.

That might not be a popular opinion, but it’s the truth.

A 50-year mortgage runs the risk of repeating that calamity.

Yes, this option would lower the monthly mortgage payment. But it would make the actual purchase price much, much more expensive.

Jayson Hardie, managing partner at Homestead Financial Mortgage, worked out the math. On the one hand, “stretching the loan over 50 years” does make “the monthly payment [drop] just enough to make the home you actually want attainable…”

However, “The total payback is exceptionally expensive.”

For instance, a 30-year $500,000 amortized loan at 6% (the approximate mortgage rate today) results in monthly payments of just under $3,000. Total interest paid will be $579,190.

However, take that same loan with the same rate and extend it over 50 years, and you do get lower monthly payments, about $2,632. But total interest paid soars to $1.08 million. In essence, you are paying twice the value of the home in interest alone.

That’s not homeownership anymore. That’s indentured servitude.

Moreover, those deceptively lower mortgage payments will easily encourage people to buy more home than they actually need. That means more rooms to fill with more furniture and more space that needs to be maintained. In all likelihood, it also means higher insurance payments and property tax.

And that, in turn, means more money to spend. In short, this is not a sustainable cycle for buyers.

Though the damage of the 50-year mortgage proposition hardly stops there.

Longer Mortgage, Riskier REITs

I’ve already implied that regular banks won’t do well under an unrestrained 50-year mortgage scheme. If it didn’t work out under the last “affordable” housing plan, it ain’t gonna work now.

They’re only as strong as their customers, after all. And the same is true of alternative banking businesses like residential mortgage REITs (mREITs).

As my regular readers know, I’m not usually a fan of these structures to begin with, although there are some exceptions. The way I see them, they’re one of the most toxic sub-classes within the larger sector.

For decades, these higher-leveraged alternatives have demonstrated consistent value destruction with frequent dividend cuts. That makes them regular sucker yields.

And if 50-year mortgages open up, they’ll become riskier still as investors demand even higher yields to justify owning them. Residential mREITs will then have to cover those bigger dividend payments by taking on more risky loans…

And we all know how that ends.

The only way I could see 50-year mortgages working is if they serve as a bridge for first-time homeowners. If people used them to get their feet through the American Dream door, then switched to a 30-year mortgage after they worked their way into a better financial situation, it could enhance long-term affordability.

But even then, I would make these new homeowners take educational courses. Classes would have to be mandatory for the loan qualification process.

I would also insist that the 50-year loan itself be bankruptcy similar to student loans. That means the loan guarantors would be obligated to pay back their debt, even in the event of bankruptcy.

This would discourage institutions from using the debt instrument for their own short-term gains, making them think twice before handing out a mortgage to every unqualified buyer.

Without those qualifications in place, history will repeat itself – in all the wrong ways.

Regards,

Brad Thomas
Editor, Wide Moat Daily