First Trust Advisors chief economist Brian Wesbury weighed whether price pressures are truly defeated and examined a plan to tap 401(k) savings for home down payments during an appearance on Varney & Co. The discussion comes as households juggle higher living costs, steep mortgage rates, and shrinking affordability. It also lands amid fresh calls for policy tools that could help first-time buyers enter the housing market.
Inflation: Cooling, But Not “Over”
The United States saw inflation peak at 9.1% in June 2022 before easing through 2023. By late 2024, annual inflation hovered closer to 3% to 4%, helped by the Federal Reserve’s rapid rate hikes to a range of 5.25% to 5.5%. That progress fuels talk of victory. But shoppers still face higher prices than before the spike, and services costs remain sticky.
Economists like Wesbury have warned that lower inflation does not mean prices are going down—only that they are rising more slowly. Groceries, insurance, rent, and utilities continue to strain budgets. Wage growth helped some households, but in many cases paychecks only recently caught up to earlier price jumps.
Two questions now dominate: Has the Fed tightened enough to cement a return to its 2% target, and can it do so without a recession? Markets are pricing in rate cuts, yet officials have stressed they need several months of steady progress before easing. Any flare-up in energy prices or supply disruptions could complicate that path.
401(k) Down Payments: Help or Hazard?
The plan discussed on air would make it easier to use 401(k) savings for home down payments, a move aimed at helping first-time buyers compete in a tight market. Today, hardship withdrawals and loans exist inside many plans, but they carry taxes, penalties, or repayment requirements. IRAs already allow up to $10,000 for a first-time home purchase without the early-withdrawal penalty, a carve-out that does not apply to 401(k)s.
Supporters say reducing penalties or expanding access for down payments could unlock homeownership for younger workers who lack family help. A down payment can lower monthly mortgage costs, and buying earlier can build equity faster. In markets where rents rise faster than wages, owning may look like the only path to stability.
Critics counter that retirement accounts are meant for old age, not housing. Pulling funds early can shrink long-term savings, especially if markets compound over decades. There is also a risk that easier access could push demand higher and inflate prices, undercutting the original goal.
Housing Affordability at a Low
Affordability has been battered by higher mortgage rates and limited supply. Even with cooling inflation, monthly payments remain elevated compared with the pre-2022 period. Inventory is tight as existing owners cling to lower-rate mortgages, and builders face labor and materials constraints.
Economists point to a simple bind: incomes have not kept pace with the combined hit from home prices, rates, and insurance. That makes any policy lever that lowers the upfront cost of buying feel attractive, even if it shifts risk to retirement security.
What Viewers Should Watch
- Inflation readings: If services and shelter costs cool, the Fed’s path to rate cuts looks smoother.
- Details of any 401(k) housing plan: Penalties, caps, income limits, and repayment rules will decide who benefits.
- Housing supply: Zoning changes, builder incentives, and permitting speeds matter as much as financing tweaks.
Balancing Today’s Bills and Tomorrow’s Needs
The idea of tapping retirement savings for a house reflects a larger tension. Families want relief now, but they also need security later. Policy that widens home access can help, yet the design matters. Caps on withdrawals, limits to first-time buyers, and counseling requirements could blunt unintended harm to retirement balances.
For inflation, the message is similar. Progress is real, but declaring victory too soon risks whiplash. A steady glide to 2% would give borrowers and builders more breathing room, and it could slowly restore affordability without stoking another price surge.
Wesbury’s appearance highlights two linked challenges: cooling prices without choking growth, and opening doors to homeownership without draining nest eggs. The next few months of inflation data, any concrete details on 401(k) down payment rules, and signs of new housing supply will signal whether policymakers can thread that needle. For now, households should run the numbers carefully, compare renting to buying, and protect long-term savings even as they hunt for a front door key.
