US Housing Market Momentum and Mortgage Rate Sensitivity: Investor Positioning in MBS and REITs

The US housing market in 2025 is navigating a complex interplay of rising demand, shifting investor strategies, and evolving mortgage rate dynamics. For investors, two asset classes-mortgage-backed securities (MBS) and housing real estate investment trusts (REITs)-have emerged as critical barometers of market sentiment and structural resilience. Recent trends in investor positioning reveal a growing appetite for these instruments, driven by expectations of rate normalization and sector-specific tailwinds.

Mortgage-Backed Securities: A Surge in Activity Amid Rate Uncertainty

According to SIFMA statistics, year-to-date (YTD) MBS issuance in 2025 has reached $1,192.4 billion, reflecting a 21.7% year-over-year increase. This surge underscores investor confidence in the sector, particularly as agency MBS trading volumes have grown by 15.9% annually, averaging $345.1 billion daily, per those SIFMA statistics. Non-agency MBS, meanwhile, has seen even sharper growth, with average daily trading volumes hitting $1.7 billion-a 19.8% rise compared to 2024, according to the same SIFMA data.

This activity suggests that investors are hedging against mortgage rate volatility while capitalizing on the Federal Reserve's potential pivot toward rate cuts. As mortgage rates remain elevated, refinancing activity has slowed, extending the life of existing mortgages and increasing the appeal of MBS as a stable cash-flow asset, according to PGIM's Q3 2025 outlook. However, the sensitivity of MBS to rate fluctuations remains a double-edged sword: rising rates could compress prepayment speeds, while falling rates might trigger prepayment risk, reducing yields, as that PGIM outlook also discusses.

Housing REITs: Resilience in a High-Rate Environment

The housing REIT sector has shown remarkable adaptability in 2025, despite challenges such as labor shortages and high borrowing costs. A Morgan Stanley analysis highlights that demographic shifts-particularly aging populations and a growing preference for renting-have sustained demand in rental markets. This has created opportunities for REITs focused on single-family rentals and senior housing, which have outperformed broader real estate indices, per SIFMA's figures.

Investor positioning in housing REITs has also been influenced by expectations of declining mortgage rates. As stated by Forbes, a projected Federal Reserve rate cut in 2025 could reduce borrowing costs for REITs, enhancing property valuations and rental income growth. For example, REITs with exposure to data centers and healthcare facilities have demonstrated resilience, as these sectors benefit from structural demand unrelated to cyclical housing trends, as noted by GLHR Investing.

However, the sector's sensitivity to mortgage rates remains pronounced. When rates fall, improved affordability boosts homebuyer activity, indirectly supporting rental markets by delaying homeownership for cost-conscious buyers, a dynamic reflected in SIFMA's MBS and housing statistics. Conversely, prolonged high rates could further undervalue REITs, presenting entry points for long-term investors.

Strategic Implications for Investors

The interplay between MBS and housing REITs highlights divergent strategies for navigating mortgage rate uncertainty. For income-focused investors, MBS offer predictable cash flows but require careful management of prepayment risk. Housing REITs, on the other hand, provide exposure to rental growth and asset appreciation, particularly in sectors like self-storage and multifamily housing, where supply constraints are driving long-term value, according to FNBO's 2025 outlook.

As of Q3 2025, PGIM notes that REITs with strong balance sheets and exposure to rate-insensitive sectors (e.g., data centers, healthcare) are best positioned to capitalize on stabilizing mortgage expectations, per the PGIM report referenced above. Meanwhile, the surge in MBS trading volumes suggests that investors are increasingly using these instruments to hedge against macroeconomic volatility.

Conclusion

The US housing market's momentum in 2025 is being shaped by a delicate balance between investor optimism and rate-driven uncertainties. While MBS issuance and REIT performance reflect a sector in transition, the path forward hinges on the Federal Reserve's policy trajectory and the resilience of underlying demand. For investors, a nuanced approach-leveraging the strengths of both MBS and REITs-could offer a hedge against rate volatility while capturing growth in a structurally evolving housing landscape.