One Tax Change For Homeowners Over 65 Could Unlock Frozen Housing Market, Per Moody’s Chief Economist
Moody's chief economist says a single tax fix aimed at homeowners over 65 could shake loose a housing market that rate cuts alone cannot fix, but the argument depends on a rule that has not changed since 1997.
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
A homeowner who locked in a mortgage years ago faces a simple problem when thinking about moving. Selling the house means giving up a cheap loan and taking on an expensive one. In a CNBC interview, Mark Zandi, chief economist at Moody’s Analytics, described the size of that gap: “We’ve got a real big problem right now. And that’s a 7.63% fixed mortgage rate. And just for context, the average coupon on an existing mortgage is about 4%.”, Zandi said.
For many older owners, the rate is only part of the problem. A house held for decades can also carry a large unrealized gain, and selling it can turn part of that gain into a tax bill. Zandi’s main proposal goes after that part.
Mortgage Rates Just Hit Their Highest Level of the Past Year
Freddie Mac’s weekly survey put the 30-year fixed mortgage average at 7.28% as of October 1, 2026. Zandi cited a higher figure, 7.63%, in the interview. Surveys measure mortgage rates in different ways.
The survey average rose 0.25 percentage points from the prior week and 0.62 points over the past month, a 9% increase.
That places the current reading at the top of its 12-month range. The year’s low was 5.98% on February 26, 2026. The average over the past year was about 6.4%, and today’s reading has a percentile rank of 98 within that range.
Rates got here fast, and most of the rise happened recently. For an owner holding a loan near the 4% average coupon Zandi described, each step up makes trading houses more expensive.
Zandi’s Fix: Reindex a Decades-Old Tax Cap for Owners Over 65
Zandi’s main idea targets the tax side of the problem: “Raise the cap on capital gains taxation that was set back in 1997. Just reindex the cap that was put in place back in ’97 to current house prices and make it for people that are over the age of 65.”, Zandi said.
Under current rules, when someone sells a primary residence, a portion of the profit is excluded from capital gains tax. Any profit above that exclusion threshold can be taxed.
That threshold was set in 1997, Zandi noted, and house prices have risen a great deal since then. Picture an owner who bought decades ago and simply stayed put. Their gain can now exceed a limit that dates to the late 1990s, and the portion above the line becomes taxable when they sell. The longer they stay and the more prices rise, the larger that taxable portion can become.
Zandi’s change has two parts. Reindexing would move the threshold up to reflect where house prices sit today. Zandi would also limit the change to people over 65, a group that includes many of the longest-tenured owners.
Zandi expects a clear result: “That I think would unlock a lot of those homes.” That is his forecast. No one has put a number on how many homes it would free up.
Lower Inflation Comes First in Zandi’s Plan
Zandi listed other steps before the tax idea: “End the Iran war, get inflation back in, let interest rates come back down. The way to get that down, get inflation back down. Get the Fed off its path to raising interest rates.”, Zandi said.
He views lower inflation as the way to bring mortgage rates down. The tax change deals with a separate barrier. For long-held homes, that barrier would stay in place even if borrowing costs fell.
Why Stalled Moves Drag on the Whole Economy
Zandi said that the stakes reach beyond individual sellers: “Housing is the caboose. It’s really holding things back so we can get housing into some kind of gear here. That would make a big difference.”
A home sale sets off a chain of spending on agents, moving companies, repairs and renovations. When owners stay put, that spending never happens, and its absence shows up in the wider economy.
What Owners Weighing a Sale Should Know Now
Zandi’s idea is only a proposal, and current law has not changed. Nothing he described has happened and no legislation is attached to it. A homeowner considering a sale today faces the capital gains rules as they stand right now.
To see where you fit in this debate, look at two facts about your own house. The first is the rate on your current mortgage compared with the survey average of 7.28%. The second is how long you have owned the home, since that is what Zandi’s tax argument turns on. Some owners face only the rate gap. The ones who have held a home for decades may face both.
The idea is getting attention because the lock-in is real, and the people most affected are the oldest owners with the longest-held homes.
Contact [email protected] for any questions or corrections.
AJ spent 10 years writing about financial markets at The Motley Fool. His coverage centers on technology stocks and the broader macroeconomic trends, from interest rates to geopolitics, that shape where markets are headed next. AJ is drawn to the stories where big-picture economics and individual companies collide.
