The Implications of Historic Low Housing Turnover for Real Estate and Mortgage-Backed Securities Markets

The U.S. housing market has entered a prolonged period of stagnation, marked by a historic low turnover rate of just 28 homes per 1,000 changing hands in 2025-the lowest since the early 1980s, according to a Redfin report. This decline, driven by high mortgage rates, affordability challenges, and seller reluctance to relinquish low fixed-rate mortgages, has created a rate-locked environment with profound implications for real estate and mortgage-backed securities (MBS) markets. Investors must now recalibrate their strategies to navigate the shifting risk-return dynamics of a market where both buyers and sellers are hesitant to transact.

Stagnant Inventory and Prepayment Risk in MBS

The low turnover rate has directly impacted prepayment risk for MBS investors. With fewer homeowners refinancing or selling, the traditional cash flow predictability of MBS portfolios has eroded. Data from ARMOUR's Q3 earnings highlights this trend: aggregate prepayments rose to 9.6 CPR (Conditional Prepayment Rate) in October 2025, a 19% increase compared to the Q3 average, signaling heightened sensitivity to refinancing activity. While this rise may seem counterintuitive in a low-turnover environment, it underscores the volatility of cash flows when market conditions shift abruptly.

For MBS investors, this volatility complicates risk management. Metrics like CPR and PSA (Public Securities Association) models, which historically projected prepayment speeds, now require frequent recalibration. The prolonged holding of low-rate mortgages by homeowners-over 70% of whom have rates below 5%-has created a "lock-in" effect, reducing the likelihood of refinancing and thus limiting prepayment opportunities, as noted in an MPA report. This dynamic has forced investors to adopt more conservative duration strategies, prioritizing securities with longer expected holding periods to mitigate cash flow uncertainty.

Investor Strategies in a Rate-Locked Housing Market

The stagnation has prompted a strategic pivot among real estate investors. Geographic diversification has emerged as a key tactic, with capital flowing to markets like Virginia Beach, VA, and Phoenix, AZ, where turnover rates remain relatively higher and multifamily demand is supported by population growth, according to Cambridge Associates. Conversely, urban cores in high-cost regions like New York and Los Angeles, where turnover is near historic lows, have seen reduced investment activity.

Income-oriented strategies are gaining traction as investors seek stable cash flows in an uncertain environment. Real estate credit, triple net (NNN) leases, and core real estate assets are being prioritized for their predictable returns. For example, Bogota Financial Corp. recently repurchased shares and increased its holdings in MBS and corporate bonds, reflecting a cautious yet growth-oriented approach, according to Bogota's Q3 results. Similarly, multifamily investments in Class B and C properties-catering to workforce housing needs in Sun Belt markets-are being favored for their resilience to economic shocks and long-term rent stability, as shown in recent multifamily trends.

Recalibrating Exposure to Housing-Linked Assets

The recalibration of exposure to housing-linked assets requires a nuanced understanding of both macroeconomic and operational metrics. Net operating income (NOI), internal rate of return (IRR), and cash-on-cash returns have become critical benchmarks for evaluating performance, as outlined in a NetSuite guide. Investors are also leveraging PropTech solutions to enhance tenant retention and optimize operational efficiency, particularly in multifamily sectors where turnover rates are lower but demand for amenities is rising, according to the Deloitte outlook.

However, challenges persist. Rising operational costs-such as property taxes, insurance, and maintenance-threaten to erode margins, particularly in markets with high regulatory burdens. Investors must balance these pressures with strategic partnerships and selective capital allocations. For instance, alliances with specialized operators in logistics, data centers, and life sciences are enabling access to high-growth sectors insulated from housing market volatility, according to Cambridge Associates.

Conclusion: Navigating the New Normal

The historic low housing turnover of 2025 represents a paradigm shift in real estate and MBS markets. While the rate-locked environment introduces significant prepayment risk and transactional inertia, it also creates opportunities for investors who can adapt to the new normal. Geographic diversification, income-focused strategies, and technological integration are no longer optional-they are imperative for maintaining competitive returns. As the market evolves, agility and data-driven decision-making will define the success of housing-linked investments in the years ahead.