MAGAnomics Faces Affordability Crisis as Housing Stalls

Twenty months into his second term, President Donald Trump’s economic agenda is confronting the precise affordability test he weaponized against Joe Biden in 2024. With mortgage rates climbing back above 7% and existing-home sales dropping to their lowest level since mid-2025, the administration can no longer rely on aggregate growth metrics to counter voter anxiety over the cost of living.

The political bind stems from a rhetorical trap set during the campaign. Trump explicitly defined economic success not by GDP or unemployment rates, but by whether families could afford homes, cars, and rent. Now, with housing inventory at its highest point since 2019 yet sales volume collapsing below 4 million annualized units, the market is signaling that high borrowing costs have effectively priced out the very demographic base that powered his return to office.

Treasury Secretary Scott Bessent has acknowledged this disconnect, conceding that telling Americans the economy is strong while they absorb years of cumulative price increases rings hollow. This marks a significant departure from the Biden-era strategy of highlighting favorable macroeconomic indicators despite poor consumer sentiment. Bessent attributed current headline inflation partly to energy shocks linked to conflict with Iran, predicting these pressures would fade, though he stopped short of labeling them transitory.

The administration’s hoped-for productivity rescue via artificial intelligence has also failed to materialize in real-time data. Despite massive capital expenditure and soaring equity valuations, AI has left no measurable footprint on total factor productivity, according to Apollo Global Management chief economist Torsten Slok. Output per hour is growing at roughly 2.5%, a rate consistent with standard capital deepening rather than a technological revolution. Historically, transformative technologies like electricity and IT required a decade or more to boost aggregate productivity, suggesting any AI-driven relief remains years away.

This delay complicates the fiscal math for MAGAnomics. The administration banked on rapid productivity gains to justify current investment levels, support real wage growth, and ease debt sustainability concerns. Without that multiplier effect, the benefits of the AI boom are accruing disproportionately to asset holders, creating what Rockefeller International chair Ruchir Sharma describes as a reverse Robin Hood dynamic. Wealth concentration at the top contradicts the anti-incumbent, populist coalition Trump assembled, potentially alienating working-class voters who measure economic health by purchasing power rather than stock indices.

White House officials continue to point to underlying strengths. National Economic Council Director Kevin Hassett cited three-month core PCE inflation at the Fed’s 2% target, resilient consumer spending, and Atlanta Fed estimates projecting third-quarter growth between 4% and 5%. Yet Hassett admitted that citing these figures risks appearing insensitive to households still adjusting to a permanently higher price baseline.

The structural challenge extends beyond temporary inflation. A feedback loop has emerged where elevated interest rates suppress new construction, constraining supply and keeping rents elevated even as demand weakens. Vehicle prices have similarly climbed, compounding the squeeze on middle-class budgets. Unlike the post-pandemic recovery, where supply chain normalization eventually eased goods inflation, the current housing stagnation reflects deeper monetary constraints that tariff policy and deregulation cannot quickly resolve.

Existing-home sales fell to a 3.98 million annual rate in August, the first reading below 4 million since June 2025, according to the National Association of Realtors.