Navigating the 2025 Housing Market Cooling: Strategic Opportunities in Real Estate and Mortgage-Backed Securities

Implications for Mortgage-Backed Securities

The cooling housing market has introduced a nuanced environment for MBS. While J.P. Morgan Research forecasts a 3% increase in home prices for 2025, this growth is tempered by mortgage rates hovering near 6.7% by year-end, which constrain demand and limit rapid price appreciation. The lock-in effect-where existing homeowners with low-rate mortgages remain in their homes-has kept inventory levels below historical averages, further stabilizing returns for MBS by curbing volatility in home equity.

Value Investing Opportunities in Real Estate

The 2025 market correction has created fertile ground for value investing, particularly in alternative property types and underpenetrated markets. Global real estate valuations in core regions like the U.S., Europe, and Asia Pacific have declined by 16% to 25%, presenting tactical entry points for investors prioritizing high-quality assets at rebased prices . These repriced valuations are further supported by anticipated interest rate cuts and a shift toward operational strategies focused on income generation and capital preservation .

1. Alternative Property Types

Investors are increasingly favoring non-traditional sectors such as purpose-built student accommodation (PBSA) and grocery-anchored retail. In European cities like Amsterdam and Madrid, PBSA addresses acute supply-demand imbalances driven by surging international student populations and undersupply . Aggregating PBSA assets in high-growth markets allows for income-resilient portfolios, leveraging regional expertise and partnerships with operating partners for execution.

In the U.S., grocery-anchored neighborhood retail is gaining traction as a defensive asset class, offering stability through essential goods consumption and resilience during economic uncertainty . The fragmented nature of the U.S. retail market provides opportunities to assemble granular portfolios, though execution requires collaboration with experienced operators to manage tenant leasing and scaling.

2. Demographic and Technological Trends

Demographic shifts, such as the growing U.S. population aged 75+ (projected to reach 40 million by 2040), are driving demand for senior housing and life sciences properties. Meanwhile, digitalization and 5G infrastructure are fueling investor interest in data centers and cell towers, sectors that have delivered annualized returns of 11.6% compared to 6.2% for traditional property types.

3. Regional and Cyclical Opportunities

Regional variations in price trends underscore the importance of localized strategies. While some major cities experience price declines, others see growth, necessitating a nuanced approach to market entry. For instance, newly built homes in inventory-rich regions are becoming attractive as builders offer incentives to stimulate demand. Additionally, the rise in total homeownership costs-encompassing utilities, maintenance, and taxes-has prompted buyers to prioritize long-term value, favoring properties with lower operating expenses.

Strategic Positioning for Cyclical Corrections

• Global Indirect Core Investing: Partnering with operating partners to access high-barrier-to-entry assets in resilient sectors like PBSA and logistics .
• Global Secondaries Investing: Leveraging dislocated markets and illiquidity to acquire high-quality assets at discounted valuations, particularly in secondary cities or underperforming portfolios .
• GP-Led and LP-Led Transactions: These bespoke solutions offer enhanced control and customization, enabling investors to target specific risk-return profiles .

Conclusion

The 2025 U.S. housing market, characterized by cooling dynamics and cyclical corrections, presents both challenges and opportunities. For MBS investors, the stabilization of home equity and moderate price growth offer a more predictable environment. Meanwhile, real estate investors can capitalize on repriced valuations, alternative property types, and demographic-driven demand to build resilient portfolios. By adopting strategic positioning-focusing on operational strength, income generation, and regional diversification-investors are well-placed to navigate the evolving landscape and unlock value in a maturing market.