Former US President Donald Trump is expected to unveil a proposal that would allow Americans to utilize their retirement savings for down payments on home purchases.
National Economic Council Director Kevin Hassett, who alluded to the plan on Friday, provided limited details regarding the mechanics of withdrawals from US workplace retirement accounts, commonly known as 401(k)s.
“Suppose that you put 10% down on a home, and then you take 10% of the equity of the home and put it in as an asset in your 401(k). Then your 401(k) will grow over time,” Hassett stated on Fox Business.
Trump is scheduled to present a “final plan” at the Davos World Economic Forum next week, he added.
The White House has yet to issue a statement on the forthcoming proposal, including its potential tax implications. Currently, employees who choose to withdraw funds from retirement accounts typically face fees and taxes.
This anticipated 401(k) plan joins a series of recent housing affordability initiatives as the Trump administration confronts increasing public concern over its economic management.
Home affordability remains a key concern for many Americans. In recent weeks, Trump has sought to address voter anxieties ahead of the midterm elections later this year by announcing several proposals aimed at alleviating the high cost of housing.
Daryl Fairweather, chief economist at Redfin, suggests that while using retirement funds for down payments may not resolve the housing affordability crisis entirely, it could assist some individuals in meeting their immediate financial needs and improving their retirement prospects.
“It doesn’t really drift that far from the purpose of 401(k)s, which is to encourage people to save money for these big expenses that they may not have the discipline to save for,” Fairweather noted.
She drew a comparison to a temporary pandemic-era policy that permitted individuals to access retirement account funds for down payments with reduced penalties.
However, she expressed concern about the potential consequences of individuals depleting their 401(k)s to purchase homes, as the value of those homes could decline, potentially worsening their financial situations.
Last week, Trump announced his intention to ban large corporate investors from acquiring single-family homes, in an effort to enhance housing affordability for Americans. This pledge has revived a long-standing idea, although some analysts question the extent to which such a ban would impact prices.
Jason Richardson, senior research director for the National Community Reinvestment Coalition, commented that both that proposal and this latest plan, “sound good but don’t actually address the core affordability and supply problems in housing”.
According to government estimates, only approximately 55% of Americans have retirement accounts, with only a subset being 401(k)s. Lower-income workers are the least likely to have access to these plans.
“This isn’t a targeted assistance program for people who need help with down payments – it’s giving people who already have substantial retirement savings more purchasing power, which will likely just drive home prices up further,” he wrote in an email.
Trump also recently directed Fannie Mae and Freddie Mac, the government-backed housing finance firms, to purchase $200bn (£149.4bn) worth of mortgage bonds. He claimed that this move would lower mortgage rates.
Increased purchases could stimulate demand for mortgage-backed securities, potentially leading to lower mortgage rates for borrowers.
The average rate on a 30-year mortgage fell below 6% for the first time in nearly three years following his announcement – “and that’s not with the help of the Fed,” Trump said during a speech in Michigan this week, referring to the Federal Reserve. The US central bank’s benchmark interest rate can indirectly affect mortgage rates.
On Friday, Hassett promoted Trump’s move to order bond purchases.
“We’ve seen a pretty big reaction to the announcement, and I think that actually makes us all feel better, because the truth is that fewer people are buying homes right now than we’ve seen pretty much in my lifetime,” he said.
However, housing economists have cautioned that the bond purchases may not significantly reduce mortgage rates in the long term.
“The key now is the timing and cadence of these purchases, which will determine whether the impact is healthy or introduces volatility into the mortgage market,” said Jeff DerGurahian, head economist at loanDepot, a mortgage lender.
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