President Donald Trump says he is restoring the American dream of homeownership, but experts say one of his latest housing policy proposals could make that dream even more out of reach.
On Wednesday, Trump touted a raft of his recent housing policies in a speech at the World Economic Forum in Davos, Switzerland. executive orderincluding preventing institutional investors from buying single-family homes and trying to lower mortgage rates by directing the government-controlled Mortgage Finance Corporation Fannie Mae and Freddie Mac $200 billion in purchases in mortgage-backed securities.
“They can’t afford to buy homes, and it’s unfair to the public,” Trump said Wednesday of institutional home buying. “I’m calling on Congress to make this ban permanent law, and I think they will.” Trump also asked Congress to cap credit card interest rates at 10 percent, which he claimed on Wednesday “will help millions of Americans save for housing.”
Trump also addressed Wall Street titans and institutional home buyers directly in Davos, saying “many of you are good friends of mine (and) many of you are supporters” but “you’ve bought hundreds of thousands of single-family homes, driving up home prices.”
“It’s a huge investment for them, typically 10 percent of the homes on the market,” Trump said. “You know, the crazy thing is, a person’s house can’t depreciate, but when a company buys it, they depreciate it.”
One policy Trump didn’t mention when he spoke in Davos on Wednesday was his proposal that would allow Americans to tap into their 401(k) savings for mortgage down payments, which one expert said could pose potentially huge risks and do nothing to address the root causes of high housing costs. Currently, the average mortgage down payment is 19% of the house price. current The median home price in the United States is approximately $428,000That means a down payment could be as high as $81,000, according to Redfin. Trump has not yet set a dollar or percentage figure on how much Americans can withdraw from their 401(k) plans for a down payment.
Trump’s eventual plan to allow Americans to use their retirement savings for down payments may require congressional approval because it could involve changes to tax laws. The proposal, announced Friday by National Economic Council Director Kevin Hassett, is Trump’s latest attempt to address growing concerns about the affordability of the U.S. economy. especially in the real estate marketPrevent the United States from becoming “a nation of renters,” as he said in his speech at the World Economic Forum on Wednesday.
The benefits of using 401(k) funds for a down payment
Trump’s idea has some merit. The number of first-time home buyers has down to about half of what it was a decade agoaccording to the National Association of Realtors. Additionally, 22% of people who can afford to buy their first home have used borrowed money or gifts from friends or relatives to finance their down payment, according to NAR.
While Americans can already withdraw up to $10,000 from an Individual Retirement Account (IRA) to pay for housing without having to pay it back before age 59 ½, this rule does not apply to employer-sponsored 401(k) accounts (the most common type of retirement account) unless the account holder pays a 10% penalty.
Americans can withdraw funds from retirement plans for certain exempt purposes, such as recovery from natural disasters and some medical expenses, but still have to pay income taxes on their tax-deferred accounts. These “hardship withdrawals” increased to 4.8% of participants pioneer The share of retirement plans in 2024 is up from 3.6% in 2023.
Most employer-sponsored 401(k) plans also allow Americans until age 59 1/2 to borrow penalty-free for a limited period from their retirement savings, including to purchase a home, as long as they repay the amount borrowed from the account with interest.
Given limited options for accessing retirement accounts, the president’s proposal could help free up liquidity for down payments for Americans in need of cash. That’s especially helpful for people who might have trouble paying back their IRA loans, said Robert Goldberg, a finance professor at Adelphi University in Garden City, New York. wealth.
Disadvantages of using 401(k) funds for down payment
Still, Goldberg warns that there are risks in abandoning your 401(k)’s diversification and concentrating most of your investments in one asset. While some people believe that home prices always rise, the 2008 housing market crash showed that this is not always the case.
“Imagine house prices falling so much that they not only fall to mortgage level, but fall below mortgage level, eliminating your equity position,” he said. “You’re going to lose your equity, your 401(k) equity. Bad outcome.”
Experts say Trump’s proposal would also do little to address supply-side issues in the housing market. mostly frozen Goldberg said that’s because homebuyers who purchased their homes at lower interest rates before the pandemic have been hesitant to sell. He argued that giving more people the means to buy homes without increasing supply could inadvertently raise prices and exclude more people from the property market, rather than making it more affordable.
“Some people will benefit from (Trump’s plan), but overall it will just increase competition for housing,” Goldberg said.
However, Jake Falcon, a chartered retirement planning advisor and CEO of Falcon Wealth Advisors, said Trump’s proposal on retirement savings is particularly dangerous because it makes it easier for Americans to use important future retirement savings for non-retirement purposes.
As of 2022, Americans ages 45 to 55 will have median retirement savings of $115,000. According to data from the Federal Reserve. However, this amount may not be enough to meet everyone’s needs, as some experts suggest that ordinary people need to save eight to ten times Their annual salary is enough to retire comfortably.
“Generally speaking, people are likely to fall behind, and that just puts them further behind,” Falcon said.
Given the dismal numbers on U.S. retirement savings, Falcon said the government should make it harder, not easier, to use retirement accounts for other purposes.
“Allowing people to raid their 401(k)s doesn’t solve the problem,” he said.