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Trump's new housing proposal targets retirement savings
U.S. President Donald Trump is preparing to announce a plan next week that would allow Americans to tap into their 401(k) retirement accounts for home down payments, National Economic Council Director Kevin Hassett revealed on Friday.
How the plan would work
Hassett outlined a scenario where homebuyers could withdraw funds from their workplace retirement accounts to cover a 10% down payment. In return, 10% of the home's equity would be treated as an asset within the 401(k), allowing the account to grow over time. Details remain scarce, and the White House has not yet addressed questions about potential tax implications or penalties for early withdrawals.
Currently, employees face fees and taxes when withdrawing from retirement accounts before age 59½. The proposal's structure could mirror a temporary pandemic-era policy that relaxed penalties for such withdrawals.
Mixed reactions from economists
Daryl Fairweather, chief economist at Redfin, acknowledged the plan might help some buyers meet immediate financial needs but warned it could backfire if home values decline. "It doesn't stray far from the purpose of 401(k)s, which is to save for major expenses," she said. "But draining retirement funds for a home purchase carries risks."
Jason Richardson, senior research director at the National Community Reinvestment Coalition, criticized the proposal as a superficial fix. "This plan and others like it sound good but fail to address the core issues of affordability and housing supply," he said in an email. He noted that only 55% of Americans have retirement accounts, with low-income workers least likely to benefit from such policies.
Broader housing affordability push
The 401(k) proposal is part of a series of recent measures by the Trump administration to tackle rising housing costs, a top concern for voters ahead of this year's midterm elections. Last week, Trump pledged to ban large corporate investors from purchasing single-family homes, though analysts question its potential impact on prices.
Trump also directed government-backed mortgage firms Fannie Mae and Freddie Mac to buy $200 billion in mortgage bonds, a move he claimed would lower borrowing rates. The announcement coincided with a drop in 30-year mortgage rates below 6% for the first time in nearly three years. "That's not with the help of the Fed," Trump said during a Michigan speech, referencing the Federal Reserve's influence on interest rates.
Market reactions and skepticism
Hassett praised the bond purchase directive on Friday, citing a "big reaction" in markets. However, economists caution that the long-term effects on mortgage rates remain uncertain. Jeff DerGurahian, head economist at mortgage lender loanDepot, emphasized the need for careful timing. "The cadence of these purchases will determine whether the impact is stable or introduces volatility," he said.
What's next
Trump is expected to present the finalized 401(k) plan at the Davos World Economic Forum next week. The proposal's rollout will likely reignite debates over housing policy and retirement security in the U.S.
