Biden’s Ticking Time Bomb Housing Market

It increasingly appears as if Joe Biden handed President Donald Trump a ticking time bomb housing market. In addition to dealing with the other financial calamities created by his predecessor, Trump may also have to navigate a real estate minefield just weeks into his second term.

As Wall Street Journal Editorial Board member Allysia Finley warned in a recent op-ed for the paper, the Biden administration, in a transparent attempt to cook the books to make the economy seem better than it was, bailed out homeowners when they couldn’t make their mortgage payments on an enormous scale. The result is another 2008-style subprime mortgage bubble that could burst at any moment.

As Finley explains, the roots of the current crisis trace back to the Obama administration. Mortgage relief policies aimed at preventing widespread foreclosures during the Great Recession evolved into a web of financial manipulation that, under the Biden administration, metastasized into unprecedented government intervention in the housing market that masked an alarming rate of missed payments.

Obama-era policies enabled home buyers with precarious financial profiles to qualify for government-backed home loans. Without getting too technical, the administration essentially allowed borrowers whose debt payments exceeded 43 percent of their income – a threshold traditionally considered a bright red flag for lending risk – to enter the mortgage market.

Under Obama’s directives, the Federal Housing Administration (FHA) became the primary mechanism for this expanded access. FHA began insuring loans for financially stretched borrowers with down payments as low as 3.5 percent, removing traditional risk barriers. For lenders, this was a win-win proposition. If borrowers defaulted, the government would pay the mortgages.

These programs created a perverse economic incentive where foreclosure became nearly impossible and banks were incentivized to approve risky borrowers for large loans – just like prior to the 2008 crash. The result is a housing market that looks stable on the surface but is held together by taxpayer subsidies.

As Finley reported, in 2007, 35 percent of new FHA borrowers had debt-to-income ratios above 43 percent. By the end of Obama’s second term in 2016, this had climbed to 54 percent — a trend that continued beyond his presidency. Moreover, “about 7.05 percent of FHA mortgages issued last year went seriously delinquent—90 or more days past when a payment is due.” That’s higher than the 7.02 percent delinquency rate seen at the peak of the 2008 subprime bubble.

Obama’s housing policies promised expanded economic opportunity but instead created a system that masked financial warning signs. The Biden administration dramatically expanded these policies – mostly under the guise of pandemic relief – in order to prop up a floundering economy.

The American Rescue Plan’s Homeowner Assistance Fund, for instance, provided nearly $10 billion for struggling homeowners, while various forbearance programs allowed borrowers to pause payments with few questions asked.

According to Treasury Department data, over 549,000 homeowners received assistance through pandemic relief programs, preventing mortgage delinquencies and defaults and putting normal market corrections on indefinite hold. These interventions fundamentally disrupted normal housing market mechanisms.

Of course, many homeowners were thrust into economic hardship in the first place by 20 percent cumulative inflation thanks to Democrats’ runaway spending during the Biden years. Home ownership became a luxury fewer Americans could afford, and the Biden administration attempted to hide that fact by covering the mortgage payments of those whose financial stability it undermined.

If the cost of living rises much more, many borrowers will not be able to pay their mortgages at all. Analysis from the American Enterprise Institute reveals that 79 percent of FHA first-time borrowers now have a month or less of financial reserves — a flashing red warning light about potential defaults. Mortgage delinquency rates have recently climbed to their highest levels since February 2022, hitting 3.2 percent in November 2024.

The problem isn’t just the mounting delinquencies. It’s the way Biden’s policies have distorted natural market corrections. The federal government has effectively created a house of cards by allowing borrowers to take out larger mortgages than they can realistically afford and then providing bailouts when they struggle. As Finley also noted, these policies have artificially inflated housing prices as well.

JPMorgan’s latest housing market analysis predicts the market will remain “largely frozen through 2025,” with growth rates potentially falling to 3 percent or less. This stagnation comes despite – or perhaps because of – years of government intervention.

As housing prices continue to climb and inflation erodes purchasing power, these high-risk borrowers find themselves increasingly trapped. The very policy designed to expand economic opportunity now threatens to financially destroy them.

The political implications are stark. Trump inherited a housing market propped up by tax dollars and facing serious structural challenges. The timing of this potential crisis is particularly problematic, as mortgage rates are expected to remain above six percent through 2025, maintaining pressure on homeowners who stretched to buy at the market’s peak.

As has been the case in so many other aspects of the economy, it has now become evident that Biden kicked the can of housing unaffordability down the road, and Trump is left to clean up his mess. When the inevitable market correction comes, it will likely be more severe due to years of artificial support and delayed adjustment.

As history has shown, housing market crises have a way of defining presidencies – often not the ones that caused them. The Trump administration now faces the monumental task of unwinding these interventions without causing a complete market collapse.

Trump has shown a knack for solving seemingly unsolvable problems. He has, for instance, already lowered inflation just weeks into his second term. But deflating the growing housing bubble may be his greatest challenge yet.

Sarah Katherine Sisk is a senior at Hillsdale College pursuing a degree in Economics and Journalism. You can follow her on X @SKSisk76.