When people talk about housing affordability, most focus on interest rates. But in last week’s Knowledge Brokers Podcast episode, guest Barry Habib took that conversation deeper.
The Fannie Mae board member, MBS Highway CEO, and four-time Crystal Ball Award winner for market forecasting says rates are only part of the equation.
The real fix, he explained, starts with policy reform inside the institutions that shape mortgage pricing.
Habib told hosts Byron Lazine, Tom Toole, and Lisa Chinatti that even if the Fed cuts rates, affordability won’t truly recover unless Fannie Mae modernizes its capital and pricing framework.
In his view, outdated rules are inflating borrowing costs and locking out creditworthy buyers.
Read on to learn why.
Rates Will Fall, but Affordability Requires Structural Change
Habib expects mortgage rates to fall soon, possibly below 6%, with a best-case scenario near 5.5% if bond spreads tighten.
Still, he warned that lower rates alone won’t be enough.
“Even if rates go to five and a half, affordability doesn’t magically return. The cost structure within Fannie Mae still makes borrowing too expensive.”
He explained that the capital standards Fannie Mae uses to back loans are overly conservative, which forces higher pricing across the board.
Those extra costs, he said, hit the very people Fannie Mae was created to help.
Byron Lazine called Habib’s remarks a wake-up call for policymakers, noting that most public discussions about affordability center on the Fed, not the frameworks behind the mortgage system itself.
“Barry, that’s the conversation policymakers should be having. This is what they’re missing.”
Policy Reform as the Missing Link
Habib believes Fannie Mae’s post-2008 capital reforms went too far. Designed to prevent another collapse, the overly cautious rules now hold back qualified buyers.
He says rebalancing that system, by aligning capital requirements and risk-based pricing with actual market data, could help millions of people enter the housing market without increasing taxpayer risk.
“We’re not talking about taking on more risk,” he said. “We’re talking about using better data so we can price it correctly and give people a fair shot.”
Tom Toole added that this kind of systemic change would directly impact agents’ businesses.
“If that happens, you’re going to see buyers who were priced out suddenly able to qualify again.”
Habib said the changes he’s advocating would make Fannie Mae’s mission more attainable: to provide sustainable, accessible housing finance for ordinary Americans.
He also emphasized that reforming the loan-level price adjustment (LLPA) system could save borrowers thousands of dollars per loan, without adding risk to the system.
The Fed’s Blind Spot and the Affordability Disconnect
While discussing inflation and rate policy, Habib criticized the Federal Reserve’s heavy reliance on lagging data, particularly the “owner’s equivalent rent” component of the Consumer Price Index (CPI).
That metric, he said, is inflating the reported rate of inflation by nearly one percentage point.
“We’re making policy decisions on stale data,” Habib said. “The Fed is looking in the rearview mirror instead of out the windshield.”
(If you’ve been watching KBP and Hot Sheet long enough, this should sound familiar.)
He explained that because the CPI reflects outdated rental data, it paints an inaccurate picture of inflation, leading the Fed to hold rates higher than necessary.
This, he argues, delays economic recovery and pushes housing further out of reach.
Lisa Chinatti agreed, saying that both policymakers and consumers are often reacting to the wrong information.
“It’s no wonder people feel stuck right now.”
Habib predicts that once real-time inflation data is reflected in the CPI, the Fed will have no choice but to reverse course.
“The minute the numbers catch up, you’ll see the narrative shift. Rates will come down fast.”
Demographics Still Favor Homeownership
Despite the challenges, Habib remains optimistic about the long-term housing outlook.
He pointed to demographics as the biggest stabilizing factor. Millennials and Gen Z are entering their prime homebuying years, creating a strong demand base that will persist even if rates remain elevated.
“The next ten years are a demographic tailwind for housing. Household formation will keep demand strong even if rates fluctuate.”
Habib added that roughly 40% of U.S. homes are owned free and clear, which adds stability and makes a widespread price collapse highly unlikely.
For agents, that means today’s market is less about timing and more about education. Buyers need context, not just about rates, but about the underlying factors shaping affordability.
Rebuilding Trust in the System
Habib said that Fannie Mae’s mission isn’t just about lending. It’s about trust. Restoring transparency and educating the public about how capital policy affects affordability are essential to rebuilding that trust.
“If we can fix the policy piece, the rate piece takes care of itself,” he said. “Affordability has to be systemic, not seasonal.”
Byron closed the conversation by saying that Habib’s policy-focused perspective was exactly what the industry needs.
“If agents can understand what you’re saying here, they can explain it to their clients, and that changes everything.”
For anyone working in housing, the conversation offered a reminder that real solutions require more than waiting for rate cuts. They require better data, smarter policy, and the courage to challenge outdated systems.
When affordability improves, it won’t be because the Fed blinked. It’ll be because the rules that govern mortgage lending finally caught up to reality.
