Housing Market Fundamentals and Policy Implications

The housing market — and, by extension, the mortgage market — remains a focal point for the administration, policymakers, and the American public. Over the past 20 years, the balance between housing supply and demand has been significantly disrupted, even as the U.S. population has continued to grow. Various research estimates place the current housing shortfall between 3.7 million and 6.0 million units nationwide. In this piece, we examine housing market fundamentals, the role of the mortgage market, and potential policy levers that could influence both. Each of these dynamics carries important implications for our investment portfolios.

If today’s housing challenge could be distilled into a single word, it would be affordability. Affordability shapes decisions around buying and selling homes. According to the U.S. Census Bureau, there are approximately 148.3 million housing units in the U.S., of which roughly 133.1 million are occupied; the remaining 15.2 million largely consist of second homes or vacant units. Data from the Census Bureau’s American Community Survey indicate that 60.6% of owner-occupied homes are financed with a mortgage, down from 65.6% a decade ago.

This decline in mortgage financing likely reflects higher interest rates and elevated home prices, both of which discourage housing turnover, as shown in Exhibit 1.

Reduced transaction activity is a direct consequence of the sharp rise in mortgage rates over the past several years, resulting in what is known as a “mortgage rate lock-in.” It no longer makes financial sense to move, even downsize, when a person’s existing mortgage rate is significantly lower than prevailing market rates, as illustrated in Exhibit 2. When combined with steady home price appreciation, higher financing costs have made affordability a pressing national concern — particularly for younger households.

The ripple effects of the global financial crisis continue to shape homeownership trends relative to prior generations. Millennials, across age cohorts, are less likely to own homes than earlier generations were at similar stages of life. Historically, homeownership has followed major life events such as marriage and childbearing. While these milestones have become less common — or occur later — among younger generations, the decline in millennial homeownership exceeds what demographic shifts alone would imply, as evidenced in Exhibit 3.

This dynamic has contributed to the emergence of the so-called “renter generation” and growing frustration around access to homeownership. In response, policymakers are increasingly exploring measures aimed at easing affordability pressures.

Upcoming election cycles may serve as a catalyst for renewed focus on housing-related policy levers. The rationale is straightforward: Younger voters may be more inclined to support administrations that address affordability concerns tied to one of the largest purchases of an individual’s lifetime.

One recent example is the proposed restriction on institutional investor home buying. The executive order provides broad direction but lacks detailed definitions — most notably around what constitutes a “large institutional investor.” Under the proposal, such entities would be subject to review by the attorney general and the chair of the Federal Trade Commission. Importantly, the order does not prohibit purchases outright; instead, it limits access to conventional mortgage guarantees. Additional provisions address built-to-rent homes and rental communities. That said, multiple research reports suggest institutional investors (in this case, defined as owning 50 or more properties) account for only 1%–2% of total home purchases, limiting the policy’s potential impact on overall affordability.

Another notable policy lever involves reform of the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. During the global financial crisis, both agencies were placed into conservatorship due to significant exposure to leveraged and deteriorating mortgage assets, raising questions about the implicit government guarantee backing their obligations. The Housing and Economic Recovery Act of 2008 (HERA) established the Federal Housing Finance Agency (FHFA) and imposed caps on the GSEs’ retained portfolios, which previously held substantial mortgage loans and securities, as detailed in Exhibit 4.

For much of the post-crisis period, these retained portfolios remained largely dormant. However, in the fourth quarter of 2025, the agencies resumed purchasing mortgage-backed securities (MBS), totaling approximately $50 billion. This activity helped compress mortgage spreads relative to Treasuries, directly reducing borrowing costs. In January of this year, the FHFA was directed to expand these purchases further. With the current retained portfolio caps set at $225 billion per agency — $450 billion in total — the GSEs have capacity to acquire roughly $200 billion in additional mortgages, which would compress the spread of mortgages over Treasuries. Given the political calendar, this activity could accelerate ahead of the November elections (Exhibit 5).

Other Legislative and Policy Options 

Beyond recent announcements, several additional policy avenues could stimulate housing activity. These measures could be pursued through congressional legislation, budget reconciliation, or executive authority. Examples include:

ROAD to Housing Act. This proposal would require congressional approval and may garner bipartisan support. While it includes potential federal tax credit adjustments, its primary focus is state-level deregulation — particularly zoning and permitting reform — that would directly address housing supply constraints.

401(k) and 529 withdrawals. This policy could be enacted through Congress or incorporated into a reconciliation bill. It would allow individuals to withdraw retirement or education savings without penalty for use toward a home down payment, targeting the demand side of affordability.

Mortgage assumability and portability. While less likely, these options remain under discussion. Assumability — potentially enacted by the FHFA — would allow a buyer to assume a seller’s existing GSE mortgage on a go-forward basis. Portability would permit borrowers to transfer their mortgage to a new property but would likely require congressional action and could face legal challenges related to due-on-sale clauses. Both measures would help alleviate mortgage rate lock-in, a key factor dampening housing turnover.

50-year mortgages. Proposed in 2025, this idea was ultimately dismissed due to concerns around excessive interest payments early in the loan’s life. While such loans would reduce monthly payments relative to 30-year mortgages, investor skepticism makes a revival unlikely.

Investment Implications

The housing market remains a sleeping giant. Historically, homeownership has represented the largest component of household wealth, and housing activity has the potential to contribute meaningfully to U.S. economic growth. While many proposed policy measures may have limited near-term impact, the downside to housing activity relative to historical levels appears constrained. Upside, though potentially slower to materialize, could be meaningful over time.

Bessemer portfolios maintain exposure across multiple segments of the housing market. Within equities, we hold positions with varying degrees of exposure across the housing ecosystem (e.g., mortgages, new construction, repair/remodeling). Currently, we hold positions in credit bureau holdings, Equifax and TransUnion, two of the main credit bureaus that provide essential individual consumer credit reports data and income analysis verification services that support banks and mortgage companies during mortgage origination and any new purchase or refinancing activity.

From a new construction standpoint, we hold positions within the roofing industry, including Carlisle Companies, a leading manufacturer of roofing materials and waterproofing solutions, and QXO, a leading roofing distributor of shingles, substrates, and components serving both the residential and commercial markets. Installed Building Products provides insulation and fire protection installation services. Repair and remodeling activity, often driven by existing home sales as many new homeowners undertake renovations after their purchase, is reflected in holdings such as Lowe’s Corporation, a leading home improvement retailer serving both do-it-yourself customers and professional contractors.

In fixed income portfolios, we hold both agency and non-agency MBS. Agency exposure provides a direct link to potential purchases by Fannie Mae and Freddie Mac through their retained portfolios. Non-agency exposure is concentrated in loans backed by median-priced homes with conservative loan-to-value ratios. Given the underlying housing fundamentals, the portfolio team views these positions as offering an attractive balance of risk and return.

Housing affordability remains central to the current low-turnover environment. Policymakers are likely to continue to focus on measures aimed at revitalizing housing market activity, potentially waking a sleeping giant. With this backdrop in mind, Bessemer’s investment teams are positioned in high-quality companies and fixed income holdings with strong credit characteristics.