Potential Policy Shifts Under Consideration for U.S. Housing Market

Presidential Policy Focus on Housing Under Scrutiny

Analysts at Raymond James have initiated discussions regarding prospective shifts in U.S. housing policy, particularly those that a potential Trump administration might pursue. These proposed changes, encompassing revisions to capital gains taxation, regulatory frameworks, and land use policies, signal an environment of heightened uncertainty and potential volatility within the housing and real estate sectors.

The Event in Detail: Policy Considerations

The focus on housing policy underscores a broader effort to address challenges within the U.S. housing market, including issues of affordability and supply. Raymond James analysts are providing insights into these potential shifts, which could fundamentally alter market dynamics. Concurrently, Fannie Mae (FNMA) stock experienced a decline of -3.29% as investors reacted to the evolving sentiment surrounding the housing market's future trajectory.

Capital Gains Taxation: Potential Reforms and Market Implications

A significant area of potential reform centers on capital gains taxation. The preferential capital gains tax rates established by the Tax Cuts and Jobs Act (TCJA) are slated to expire on December 31, 2025. This expiration could lead to an increase in the highest long-term capital gains tax rate from the current 20% to an expected 25% for high-income earners starting in 2026. Additionally, the income thresholds for these tax rates are projected to change, potentially increasing the tax burden on higher-income individuals.

Changes to the Net Investment Income Tax (NIIT), which imposes an additional 3.8% tax on investment income for high-income earners, are also anticipated, with the income threshold potentially being lowered to encompass more taxpayers. Furthermore, limitations on the "basis step-up" at death could lead to higher capital gains taxes on inherited assets, impacting estate planning.

Conversely, legislative proposals such as the "No Tax on Home Sales Act," introduced by U.S. Rep. Marjorie Taylor Greene, aim to eliminate capital gains taxes on the sale of a primary residence. This bill, which President Donald Trump has indicated support for, seeks to alleviate the "hidden home equity tax" currently affecting many homeowners whose equity has surpassed the long-unchanged exclusion limits of $250,000 for single filers and $500,000 for married couples. Had these thresholds kept pace with inflation, they would reportedly be over $660,000 and $1.32 million today.

Separately, the recently signed "One Big Beautiful Bill Act (OBBBA)" raises the federal cap on state and local tax (SALT) deductions to $40,000 for the 2025 tax year, a move that could significantly reduce federal tax bills for millions of homeowners. The OBBBA also makes higher gift tax exemptions permanent, facilitating the intergenerational transfer of wealth, including real estate.

Regulatory and Land Use Reform: Easing Development and Addressing Supply

Beyond taxation, regulatory and land use policies are key areas for potential reform. Recent legislation in Texas, including Senate Bills 15, 17, and 840, illustrates efforts to ease development restrictions, promote higher density, and facilitate commercial-to-residential conversions in urban areas. These measures, effective September 1, 2025, aim to increase housing supply by streamlining local zoning regulations. SB 17 also introduces national security dimensions, prohibiting property ownership by foreign entities from designated countries.

Future federal policy could mirror such state-level initiatives. President Trump has previously advocated for streamlining zoning approval processes and making federal land available for new housing construction projects. However, he has also expressed opposition to multifamily developments in predominantly single-family neighborhoods and low-income housing in suburban areas, suggesting a complex approach to supply-side solutions.

Adding to the evolving landscape, the Renewing Opportunity in the American Dream (ROAD) to Housing Act of 2025, a bipartisan initiative, signals a federal push to address housing shortages. This act aims to reduce costs and accelerate production by eliminating federal requirements for permanent chassis in manufactured homes, reviewing FHA financing for modular construction, and establishing an Innovation Fund to incentivize local zoning reforms. Furthermore, it raises bank investment caps for affordable housing to 20% and supports transit-oriented developments through programs like TIFIA/RRIF.

Market Reaction and Broader Context

The immediate market reaction to policy discussions has been observed in specific equities. Fannie Mae (FNMA) stock experienced a decline of -3.10% on Wednesday, October 15, 2025, closing at $10.01 from $10.33. This marks the fifth consecutive day of decline for the stock, culminating in a total decrease of -17.48% over the preceding 10-day period. Trading volume for FNMA also decreased by 3 million shares, with approximately 2 million shares changing hands, totaling $24.60 million.

Broader market analysis by J.P. Morgan Research in February 2025 projected a subdued increase in U.S. house prices by 3% overall in 2025. This outlook is framed by a "higher-for-longer" interest rate environment, with mortgage rates expected to ease only slightly to 6.7% by year-end 2025. This sustained high-interest-rate environment is a primary driver of current housing market stagnation, as an estimated 80% of borrowers are "100 basis points or more out-of-the-money," creating a significant disincentive to sell their homes and thus contributing to tight supply.

Existing home sales (EHS) remain exceptionally low, although housing inventory is showing signs of a gradual increase, up 0.7% month-over-month to 1.37 million in October 2024, and existing home sales rising 3.4% month-over-month to 3.96 million. Despite these increases, inventory levels remain significantly below historical averages, with single-family existing homes for sale nationally still 20-30% below prior troughs.

Expert Commentary and Forward Outlook

Experts emphasize the complex interplay of factors influencing the housing market. John Sim, Head of Securitized Products Research at J.P. Morgan, commented on the potential effects of immigration policies:

"By reducing immigration and lessening demand, Trump argues that housing costs can be reduced... It's not that simple, though — approximately 30% of construction workers are immigrants, so there could be complex implications. Cutting immigration would mean cutting labor supply in the construction industry, which could end up exacerbating the lack of affordable housing."

This highlights the nuanced challenges associated with policy interventions in a highly interconnected market. The market sentiment for housing and related sectors is currently characterized as uncertain, with high volatility expected as policy discussions unfold and potential legislative changes materialize.

Looking ahead, investors will closely monitor further policy pronouncements and legislative developments. The convergence of proposed tax reforms, regulatory adjustments, and land use initiatives could reshape the U.S. housing market landscape significantly. Key factors to watch include the progression of capital gains tax legislation, the implementation of federal and state-level zoning reforms, and the trajectory of mortgage interest rates, all of which will influence property values, construction activity, and overall housing affordability in the coming months and years.