by Alex Harding, CFA
Senior Vice President
Equity Research and Portfolio Management
Investors returned from the long weekend to something more jarring than the usual post-holiday lull: a burst of geopolitical theater that triggered the sharpest pullback in the S&P 500 since last October. The spark was unconventional even by recent standards, as the U.S. administration increased pressure on several European allies over a proposed U.S. purchase of Greenland, pairing the idea with threats of 10%-to-25% tariffs on eight NATO countries. Domestic stocks, bonds and the U.S. dollar sold off sharply as investors began to price in the risk of a meaningful escalation with the United States’ largest trading partner, the European Union.
By Thursday, the tone shifted when the president softened his stance at the World Economic Forum in Davos, Switzerland. He ruled out military force and signaled a “framework for future negotiations,” helping equities retrace most of Tuesday’s losses. This pattern of an aggressive opening salvo, market turbulence, then a partial climbdown once financial conditions tighten, has become a defining feature of the administration’s negotiating style. For investors, it serves as a reminder that headline risk can move markets quickly, even when the underlying economic fundamentals change more slowly.
Housing Affordability
With geopolitical tensions temporarily dialed back, attention in Washington has turned to a less theatrical but far more persistent domestic issue: housing affordability. Ahead of the midterm elections, the White House has unveiled a series of initiatives framed as an effort to “restore the American Dream” for younger households and first-time buyers, who have been effectively priced out of many markets. A centerpiece of this agenda is a new executive order aimed at “large institutional investors,” instructing Fannie Mae and Freddie Mac to stop guaranteeing mortgages for major corporate buyers of single-family homes and signaling that “America will not become a nation of renters.” The order also directs the government-sponsored enterprises to purchase roughly $200 billion in mortgage-backed securities, with the explicit goal of lowering borrowing costs; this has already helped push the 30-year fixed-rate mortgage to a three-year low.
The underlying math, however, is more complex. Returning affordability to something closer to the 2019 level—when a median buyer devoted approximately 20% of income to housing—would require one of three extreme adjustments: roughly a 35% decline in home prices, a 56% jump in median incomes, or mortgage rates falling to an implausible 2.65%. Policymakers are also trying to balance support for new buyers against the interests of roughly 88 million existing homeowners, who collectively hold tens of trillions of dollars in housing equity. They are acutely aware that a rapid increase in supply or a sharp policy misstep could undermine that equity, and the president has acknowledged that overcorrecting on construction or forced selling could “crush” household balance sheets. As a result, measures that aim to boost purchasing power—such as longer amortization through products like a proposed 50-year mortgage or even lower rates—risk being capitalized into higher prices rather than meaningfully improving entry-level affordability if supply constraints persist.
Supply vs. Demand
Limiting Wall Street’s footprint in single-family housing makes for compelling campaign messaging, but it addresses only a small piece of the puzzle, given that institutional investors own only a small fraction of the national housing stock. These restrictions, combined with expanded access to retirement accounts for down payments, may provide incremental tailwinds for some first-time buyers but do little to close the broader supply-demand gap. As shown below, JPMorgan estimates there is currently a 2.8 million-home shortage that could take approximately 10 years to resolve.
Source: JP Morgan Chase
Clearly, the more durable constraint remains a chronic shortage of homes, reinforced by a patchwork of tens of thousands of local zoning bodies and land-use regimes that the federal government can influence only marginally. Until the policy focus shifts from subsidizing demand to materially increasing supply, housing is likely to remain challenging for those still on the sidelines, even as new affordability initiatives proliferate.
Takeaways for the Week
Markets saw a volatile week: the S&P 500 posted its worst day since October 2025 with a 2% drop on Tuesday, but recovered most of its losses by week’s end as trade tensions eased
Ahead of the midterms, the administration is launching several initiatives to tackle persistent voter concerns over affordability
The housing crisis lacks a quick fix; while current initiatives offer marginal relief, a long-term solution requires a fundamental focus on increasing supply