President Donald Trump said he is reestablishing the American Dream of homeownership, but one of his most recent housing policy proposals may put the dream even more out of reach, experts say.
“It’s just not fair to the public [that] they’re not able to buy a house,” Trump said Wednesday of institutional homebuying. “And I’m calling on Congress to pass that ban into permanent law, and I think they will.” Trump has also asked Congress to cap credit-card interest rates at 10%, which he claimed Wednesday “will help millions of Americans save for a home.”
Trump also spoke directly to Wall Street giants and institutional homebuyers at Davos, saying: “Many of you are good friends of mine, [and] many of you are supporters,” but “you’ve driven up housing prices by purchasing hundreds of thousands of single-family homes.
“It’s been a great investment for them, often as much as 10% of houses on the market,” Trump said. “You know, the crazy thing is, a person can’t get depreciation on a house, but when a corporation buys it, they get depreciation.”
A spokesperson for the White House told Fortune in a statement that President Trump has pledged to improve housing affordability for Americans.
“That’s why President Trump signed an executive order aiming to protect single-family homebuyers from large institutional investors and help them achieve the American Dream of homeownership,” the spokesperson said.
While Americans can already withdraw up to $10,000 to pay for a home from individual retirement accounts (IRAs) without repaying it before age 59½, this rule doesn’t apply to employer-sponsored 401(k)s, the most common retirement account, unless account holders pay a 10% penalty.
Most employer-sponsored 401(k)s also allow Americans to borrow for a limited time from their retirement savings penalty-free before 59½, including for a home purchase, as long as they repay the amount borrowed to the account with interest.
Given the limited options for accessing retirement accounts, the president’s proposal could help Americans in need of cash to unlock liquidity for a down payment. This could be especially helpful for those who may struggle to repay an IRA loan, Robert Goldberg, a finance professor at Adelphi University in Garden City, N.Y., told Fortune.
Still, Goldberg warned swapping out the diversified investments of a 401(k) and concentrating a large chunk of their investment into one asset is risky. While some believe home prices always go up, the housing market collapse of 2008 showed this isn’t always the case.
“Imagine home prices drop so much that the home price goes not just down to the mortgage level, but to below the mortgage level, wipes out your equity position,” he said. “You would have lost your equity, your 401(k) equity. Bad outcome.”
“Some people will benefit from [Trump’s plan], but overall it will just be more competition for homes,” Goldberg said.
Yet Trump’s proposal dealing with retirement savings is especially risky because it makes it easier for Americans to use crucial retirement savings meant for the future for non-retirement uses, said Jake Falcon, a chartered retirement planning counselor and the CEO of Falcon Wealth Advisors.
“People, generally speaking, are more than likely behind, and this will just make them further behind,” Falcon said.
Given the bleak data on American retirement savings, Falcon said the government should make dipping into a retirement account for other uses harder instead of easier.
“Allowing people to raid their 401(k) doesn’t solve the problem,” he said.
