Trump Directs $200 Billion Mortgage Bond Buy in Housing Push

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2:11They are still sticking close to their lowest levels in more than a year. And the good news, there is some affordability set to gradually improve as modest rises in home values mean that incomes can catch up, opening up a wider pool of shoppers able to buy home. That's according to Karen Nigg. She is senior economist over at Zillow Home Loans. So that's going on. And then we had what President Trump had to say yesterday that made us all like, wait, what? Yeah, this is at least his plan to make homes more affordable. That is to ban institutional investors from buying single family homes. Not everybody agrees that's the way to do it, especially Connor Sen of Bloomberg Opinion.

2:46He's founder of Peach Tree Creek Investments. He joins us from Atlanta. Connor, you have this column out this morning. You argue that this is not the right way for the president to approach housing affordability. Why is that? I think the first thing you want to do if you want to make affordability better is you want to make sure that at least we're not building fewer homes as a result of any policy change. And my concern, at least if you're talking about preventing institutions from buying new homes, build rent, things like that, is you're just taking away a source of demand from home builders.

3:15And rather than them selling homes to individual homebuyers instead, they might just produce fewer homes because right now they're really struggling with profitability and weak demand. And I don't think you want to remove a source of demand. So I think you want to find other ways of facilitating transactions and improving affordability without really going after the homebuilders. I always feel like, Connor, when we talk to folks in the homebuilding market, a lot of it has to do with available land, buying land, and then dealing with local markets. We know real estate is such a local marketplace.

3:46I feel like it always comes down to more of that versus whether or not institutional investors are buying, especially when they're such a small part of the market. Right. Like John Burns Research and Consulting has data that says that among the new home builders, new home market, institutions are only about 4 % of the market. And they're really buying communities custom built for them. They're not competing with a 33-year-old about to have a kid to buy one-off homes. It's really we're going to allocate a certain number of homes for institutions. Or in some cases, when the market's weak, like it was in 2022, if home builders are really struggling to offload inventory, it's like here's a buyer of last resort, so to speak.

4:23And that just helps de-risk the industry where they can keep producing homes, knowing that even if market conditions turn rockier, there is a buyer out there. You're going to have households walk away. Yeah, I think the data is really interesting. And I think there's a lot of politics in this, too, Connor. I mean, you've written about the politics of rising prices, especially in your home area around Atlanta and the way that power costs have increased. Maybe this is a way for Republicans to say we are addressing ahead of the elections. We are addressing the affordability issue. It seems populist and political at its core.

4:59And I get how a lot of people in both parties see a headline like, you know, keep Blackstone from buying your home. And that sounds compelling. But the facts just don't really back up that they're a major player. Like in Atlanta, they do own a fair number of homes. I think we're the number one market in the country for institutional ownership. But most of these homes were bought in the early 2010s in the wake of the foreclosure crisis. And at that time, there really wasn't much home buying demand at all. And so institutions stepped in to really prevent the foreclosure crisis from getting worse, prevent home values from falling even further, prevent banks from failing.

5:29And I think in 2026, we lose sight of that. But they haven't really been a big player in the market in recent years. These are just homes they bought 15 years ago in a very different environment. I thought Jonathan Miller of Miller Samuel, he was on with Scarlett a little earlier today. He said that part of the issue is that the highest concentration of investment is in the South where there's already excess supply of homes right now. So even though and that's that's where these institutional institutional owners of single family homes have a high concentration. As Carol mentioned, so much of this is local.

6:01This this all has to do with local. The issue it comes down to, Connor, is zoning and making sure that people are saying yes in my backyard to upzoning, yes in my backyard to building more dense housing. Is that the only solution here? I think that's a big part of the solution. And the other one that I've written about recently is that in a normal housing market where we're selling maybe five to five and a half million homes a year, people tend to move from north to south, maybe retirees in Connecticut moving to Florida, people in California moving to Austin. And because resale transactions are down about 25 percent from normalized levels, that migration flow isn't happening.

6:39And that's why the tightest housing market in the country right now is Hartford. And I've got a lot of love for Connecticut. I've got a cousin who lives up there. But I don't think that Connecticut all of a sudden became the hottest housing market in the country. I think just this decline in mobility and migration means that a lot of retirees who might want to leave Connecticut are kind of stuck there. And therefore, their homes aren't hitting the market. That keeps younger people in Connecticut from buying homes that maybe would have been available if people could move to Florida the way they could in the 2010s.

7:06So, Connor, is it more not about an affordability issue? I mean, I was trying to look at some numbers, and I think it's about 66 to 67 percent of Americans actually own some kind of property or home ownership. I think it's 85 to 90 million Americans. I mean, so is it not an affordability issue? Is it more about people not moving around that the houses are there? It's just maybe not where they need to be. And you can understand why home builders might be hesitant to build homes because at some point, all the baby boomers, forgive me, a lot of them in my family, you know, they're not going to be around anymore.

7:41And there's going to be home supply. I think your point is a really regional issue right now. There are plenty of homes to buy in Florida and Texas and a real shortage in the Northeast and the Midwest. And so you have this two-tier market where the places where builders build have plenty of homes. The places where builders typically don't, where zoning is harder, to your point, have a real shortage. And so I think you want to address both sides. To me, the elegant way is to try to find policies that will get transactions back to normalized levels, which that won't lead to more building in Connecticut.

8:11But that'll make it easier for homeowners in Connecticut who want to retire to the south to move out and free up that inventory for people in the north. And then to your point, people in the north just have to create zoning policies to allow for more homes to be built. And that's a hard fight that'll take time. But that's just part of the solution as well. Yeah. And that's a that's a local fight, as everybody knows, who's been who've been to the ballot box or followed local politics. Hey, Connor, before we let you go, when the actual publicly traded home builders that do the home building in this country, how much of it is on them versus like, you know, the smaller developers like the guy on my block, for example, who's bought, you know, three different homes and rehab them and flip those homes.

8:51Like how much is about that supply versus those institutional home builders? I think the publicly traded builders that, again, are predominantly in the South and West, they're doing their job. They're trying to build homes. They're operating at profit margins that they don't want to be operating at. And it's the smaller builders that are dominating the Northeast that have a harder time accessing capital. They're struggling with cost and things like that. So, again, I do think it's different issues. And so it's probably more of a local regional issue to address the true shortage of where it currently exists rather than a national solution where, again, And publicly traded builders already are doing their best and they're struggling.

9:29And so they're not the bad guys here. Stay with us. More from Bloomberg Businessweek Daily coming up after this. They told us to expect change. They warned us about the transition. But honestly, they forgot the best part. This is the chapter where we finally focus on us. Life MD delivers expert menopause and midlife care right from your home. From hormone health to holistic wellness, Life MD helps you feel your best for the best years of your life. Life MD, it's just getting good. Visit LifeMD.com slash goodlife. Support for the show comes from Public. Lately, it feels like there are two types of investing platforms.

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12:32going on and what it means for investors, Tim. Yeah, and that, of course, is the U.S. economy. Companies here announcing fewer layoffs last month while planning more hiring, potentially easing fears of a sharper slowdown in the labor market. Also, U.S. labor productivity accelerated in the third quarter to the strongest pace in two years, adding to evidence that efficiency gains are suppressing inflationary pressures and wages. And the U.S. trade deficit narrowed in October to the smallest since 2009, a sharp pullback on imports, notably pharmaceuticals. Weighing in on the U.S. economy and the Fed rate trajectory, on Bloomberg surveillance, Fed Governor Stephen Myron.

13:08I'm unsurprisingly the lowest dot. I'm looking for about a point and a half of cuts. A lot of that is driven by my view of inflation. Underlying inflation is running within noise of our target, and that's a good indication of where overall inflation is going to be going in the medium term. But then the unemployment rate is 4.6 percent, right? So that means that there's about a million Americans who don't have jobs, who could have jobs without causing unwanted inflation, without causing unwanted upward pressure and inflation. All right, that, of course, is Fed Governor Stephen Myron this morning on Bloomberg Surveillance.

13:35The New York Times also reporting that the president says he has made up his mind when it comes to his Fed chair pick. So let's talk the economy. I thought he had already made up his mind. It's the thing that keeps on promising. At some point, you've got to make a pick. We'll see. When it comes to this president, he'll make up his mind, I guess, when he's ready, right? Let's talk about that, the Fed pick, the Fed policy, the U.S. economy, and really what it means for markets and investors. With us is Bloomberg Economics, U.S. and Canada. Economist Stuart Paul right here in studio, along with Ali McCartney back with us, Managing Director of Wealth Management and Private Wealth Advisor with Alignment Partners at UBS.

14:12Happy New Year. Good to have you both. We decided to, like, put you together because we feel like it all makes sense. But, Stuart, we want to start with you. Fed Governor Myron is advocating for 150 basis points of cuts in 2026. Do we need that? Would that make a difference in the labor market? And is that what needs to be targeted when it comes to the Fed? I think 150 basis points is way too much. I think that it really assumes that policy is super restrictive right now. But when you look at, let's say, credit spreads, when you look at asset valuations, when you look at household bankruptcies, when you look at credit card delinquencies and auto loan delinquencies, it's pretty clearly the case that monetary policy is not so restrictive that 150 basis points of cuts is warranted.

14:54I think that when we then look at the labor market, it looks to me like a lot of what we're seeing, the slower absorption of labor by firms, it looks like that's mostly due to a structural rebalancing rather than cyclical weakness. And when that's the case, again, why rush to make cuts? Why rush for 150 basis points of cuts this year? Sally, you're nodding. I see you come on in. Well, look, I mean, I think there are two things. You don't have to agree with Stu just because he's next to you. Fair. First of all, the relationship between monetary policy and the labor market is tenuous at best. Second, inflation, as they said, is exactly where they think it should be.

15:35And that seems to be proven out. And the cyclicality has been significant. Part of why we are where we are right now in terms of market highs, in terms of things like where precious metals are, is because growth has surprised to the upside again and again. And you're seeing that, to tie this all together, you're seeing that in productivity. When you look at the 18 companies that have off-cycle reporting and have already reported full year and third quarter, they are beating by, as done in the third quarter, about two times what the street had expected. So they're beating at about 14%. So things are pretty good.

16:18But not on revenues. Not on revenues. Okay. on productivity gains, on margin. And so things are pretty good. There's a lot of noise. A lot of it's coming out of D.C., like moment by moment, but things are good. Well, that noise from D.C., Stu, and we talk with you and we talk with Allie about this. I mean, we think about yesterday, all of the social media from President Trump, whether it was on the housing market, whether it was on defense company, there's a lot, everything that happened in Venezuela, which makes you think, okay, what geopolitically next might happen? How do you continue to pull that in?

16:50And Ali, we're going to ask the same of you. How do you continue to pull that in and factor it into maybe economic projections, or do you not? Well, we do. We do think that there is going to be a considerable amount of fiscal tailwinds that support growth throughout 2026. We do get a lot of noise when it comes to things like housing policy. And then when we factor in something like a banning of institutional investors from buying homes, we then have to think about the knock-on consequences for home valuations, for household wealth. It starts to get very tricky. So we're sort of moving at the pace of policy as opposed to at the pace of rhetoric.

17:25And right now where we see the policy stance is that deregulation, fiscal tailwinds are going to support growth throughout the year. And again, when that's the case, no need to rush for cuts. Ali, what about when it comes to more spending from the U.S. government? What if the president gets his wish and sees an additional$500 billion in the defense budget up from a trillion dollars? Well, then we have a couple issues because there's both sides of that trade, right? So then we have increased fiscal tailwinds, which are already, through the big, beautiful bill, which are already sort of myriad, and we've seen them already in a sense.

17:59You're talking about the deficit. And then you have the deficit, right? So all of these things play together. And I think, to your point, right now you have to invest on Fed directionality, not magnitude. Earnings, which is going to be significant this year, probably 10 % to 12 % and much more broad. Well, when we say much more, there are about 10 companies that made up 50 % of the earnings in 2025. And quite honestly, the year before and the year before. Now they're going to grow at about 22%, while the rest is going to grow about 4 % or 5%. But believe it or not, there is some more breadth to that.

18:35But those are the fundamentals you have to invest in. And then you have to understand that this concept that has been coming out of Washington the last couple of days, which is affordability, is a big deal because midterm elections are this year. And so there is going to be a lot of policy put forward, a lot of rhetoric. and it's almost going to be like a live action show for the next number of months, you know, seeing what happens between Trump and Congress, what happens in the Fed, and sort of figuring out what of these are, you know, could happen 100%, what could happen 0%, and what's happening in the middle.

19:13Stu, you've been looking at the midterms, right, and doing some kind of in-house calculations a little bit about whether or not we might see a GOP pushback or maybe it won't be as strong as everybody's expecting. Yeah, Ali brings up an interesting point about just how much affordability has been at the forefront of people's minds, including for voters. When we then take a macroeconomic perspective and we think about what really matters for voters as much as they're focusing on affordability because it mattered for the Mamdani election in New York, what seems to matter most are things like inflation playing into affordability and improving living standards.

19:45And when we then model out what the change in the structure of the House of Representatives is going to look like after the midterms, it actually doesn't look like voters are exactly rushing to flip the House. Right now, the betting markets are assigning about a 70 % probability that the House flips to Democratic control after the midterm elections. But when I model out control of the House based on those major economic variables, inflation and standard of living, it looks like just about four Republican seats will flip. Again, this is very top down. And when When you look at politics, you really need to go bottoms up from the congressional district and really understand how people are living district by district.

20:27But it doesn't exactly look like it's a mortal lock that the House is going to flip. It actually looks like it's going to be much closer in the president's favor in the midterms than betting markets are supposing right now. So, Ali, bring it home to the markets for us and to where you're advising people to put their money. Yeah. So this year, I called my last note, lather, rinse, repeat. Over the last two years, you've seen the same thing. You've seen decreasing interest rates, helping bonds and equities. You've seen equities doing extremely well. Actually, last year, U.S. equities were dwarfed, in a sense, by non-U.S.

21:03equities. And you've seen commodities for a whole host of reasons, including the dollar, including geopolitical risk increase. I expect more of that to happen this year because I think what we have is the same levels of support and growth, Fed directionality, fiscal tailwinds, AI, but we also have another that GDP keeps on surprising to the upside. And so really, there are a lot of tailwinds. And I also call it like fear of heights right now. It's hard to want to invest in these things. But there's reason to be bullish. We've got about 30 seconds left for each of you. Ali, I just want to ask you, were you making investment decisions based on what President Trump had to say about institutional investors not buying housing or about defense?

21:49Absolutely not. We make investment decisions based on the fundamentals of stocks, companies, and the macro economy. When and if that changes, and these things could markedly change that, then we would make maybe tactical changes where we would overweight defense in something like that. But not on a tweet. But in terms of, absolutely, you'd get brain damage from doing that. 25 seconds left for you, Stuart. Are we going to get brain damage coming off of the jobs report tomorrow? No, just real quickly, what do we need to know? No brain damage. I'm expecting 80 ,000 to 100 ,000 jobs added in the month of December.

22:25It feels low. It feels low if we consider the post-COVID hiring boom. But in the context of the break-even pace of hiring, that's double the pace needed to maintain a steady unemployment rate. 80 to 100 ,000 jobs would be a very good jobs report. Great stuff.

22:56I want to bring in David Wu. He's a macro strategist. He's former Bank of America, head of global interest rates, forward exchange, emerging markets, fixed income strategy, and economics research. He's here in the Bloomberg Interactive Brokers Studio. Now you have David Wu Unbound, where you basically talk about everything concerning the macroeconomic environment. It's an idea of it's a forum. It's a place for dialogue. There's a lot to talk about right now. And when it comes to geopolitics, I'm wondering how your view shifted after the U.S.'s activity over the weekend. I think, you know, I haven't shifted that much because I saw this coming.

23:34But nevertheless... What do you mean you saw this coming? What did you see coming exactly? I mean, it was obvious that, you know, listen, I mean, there's no doubt. The biggest, the single most important story of 2026 is the U.S. midterm election. And Trump just told you if the Republicans lose their congressional majorities, he's going to get impeached. So why Venezuela? Why Venezuela? And I think many would say, like, we, I think you even talked about it with our Eric Schatzker, maybe off air, of like, not surprised that it happened, it's just why now? Right now, I'll tell you, it's very simple.