When Donald Trump kept hammering the Federal Reserve about interest rates, most folks just rolled their eyes. Another day, another Trump Twitter tantrum about monetary policy, right?
But hang on—there's actually something deeper happening here.
The housing market is in trouble. Bad trouble. And nobody in Washington seems particularly eager to talk about it.
I've been tracking real estate trends since the 2008 meltdown, and some of the warning signals look disturbingly familiar. Home sales have been—what's the polite term realtors use?—"challenging." That's code for "nobody's buying because nobody can afford to."
The numbers tell a brutal story. The typical American family now needs to fork over about 40% of their income just to make mortgage payments. Forty percent! Any financial advisor worth their salt would tell you that's completely unsustainable.
Here's the thing about housing (and why Trump cares so much): it's not just another economic sector. It's a behemoth. When you factor in all the direct and related spending, we're talking roughly 16% of GDP.
Think about it. Buy a house, and suddenly you're also hiring movers, purchasing furniture, renovating that hideous 1970s kitchen, planting shrubs, buying appliances... the economic ripple effect is enormous.
And that ripple effect works both ways.
When mortgage rates jumped from 3% to over 7%, it didn't just change some abstract number on a balance sheet. It slammed the door shut on millions of potential homebuyers. People who could have afforded a home two years ago are now completely priced out of the market.
(I spoke with a mortgage broker in Phoenix last week who told me applications have dropped by more than 60% in his office. "It's worse than 2008," he told me, "because at least then prices were dropping to compensate.")
What's particularly nasty about the current situation is what I call the "rate lock" effect. Homeowners who snagged those sweet 3% mortgages during the pandemic are now trapped—they can't afford to sell and buy something else because they'd be trading their dirt-cheap financing for a 7% rate. So they stay put.
The result? Supply tightens while demand collapses. It's a market that looks stable from a distance but is functionally broken when you get up close.
Unlike some economic problems that can be fixed quickly—flip a switch on tariffs, for instance—housing corrections are slow, painful affairs. The 2009 collapse wasn't measured in months; it was years of misery working through the system.
And it's getting worse. Insurance rates in Florida and California are going through the roof due to climate risks. FEMA is restructuring flood protection. Property taxes keep climbing. The monthly cost of owning a home is increasingly detached from what normal people actually earn.
So when Trump was badgering Jerome Powell about those interest rates? He wasn't just thinking about GDP numbers for campaign ads. He was looking at a housing sector that could potentially trigger broader economic contagion right as election season heats up.
Look, a housing market downturn doesn't just hurt homeowners and their balance sheets. It decimates construction workers, furniture stores, Home Depot, landscapers, and countless small businesses.
The timing couldn't be worse for him politically. A full-blown housing crisis erupting in summer 2024? That's the kind of October surprise no candidate wants.
Will every market suffer equally? Of course not. Those fancy coastal cities with tech money and limited supply will probably weather things just fine. But America's vast suburban and rural housing markets? That's another story altogether.
Having covered housing policy for over a decade, I find it fascinating how we've backed ourselves into this corner. The very tools we use to fight inflation (raising interest rates) directly undermine stability in one of our most important economic sectors.
It's a hell of a dilemma.
For cash-rich investors, the coming months might present some buying opportunities. But for the broader economy—and especially for politicians seeking office—a continued housing slowdown represents exactly the kind of slow-motion disaster that keeps campaign strategists up at night.
Because unlike a stock market dip that people can ignore by not checking their 401(k), housing troubles hit voters where they actually live.
