Limited Supply and High Prices

Home prices and rents are near record highs in most parts of the country, despite higher interest rates.¹ According to William Pattison, head of research and strategy, real estate, at MetLife Investment Management, the outlook for residential investments remains positive thanks to economic conditions, demographic tailwinds and dwindling new construction. 

As demand rises, there are several factors constricting supply. The first is interest rates: Mortgage rates remain much higher than those homeowners saw during the 2010s. Outstanding mortgages have a median rate around 4%, according to the U.S. Federal Housing Finance Agency. With new mortgage rates hovering north of 6.5%, homeowners considering selling their homes face the prospect of buying with higher financing costs. That’s leaving many homeowners feeling locked in by their current low-rate mortgages, giving them a financial incentive to stay put.

“When mortgage rates rose in 2022, we saw the largest drop in household mobility since the subprime mortgage crisis,” Pattison says. “The lock-in effect is likely to take several more years to resolve.” 

At the same time, builders are facing higher financing costs and more expensive building labor and materials. “The lessons learned from the Great Financial Crisis have made builders more cautious,” says Alfred Chang, head of residential credit at MetLife Investment Management. “Although some markets are seeing increasing new supply, overall inventory is low, and there are no major drivers out there to materially increase it. If rates don’t materially decrease, supply will continue to be suppressed. Builders won’t build, and homeowners are going to want to protect the equity they have in their homes and do what they can to not default on their mortgages.”

Changing Homeownership Patterns

Homeownership rates are still below the levels seen before the Great Financial Crisis nearly 20 years ago. Families entering the market for the first time are finding it particularly challenging. Prices for the bottom tier of homes have risen faster than the market overall, and fewer starter homes are being built. In 1984, nearly 50% of 30-year-olds owned a home; today that number has dropped to around 30%.²

“Home price appreciation was extraordinarily strong over the last 20 years, in large part due to very accommodative interest rate policies,” Ray says. “Given the elevated cost of home ownership, some key demographic segments will tilt more toward renting for longer.” 

The market is already responding to these trends. The number of build-to-rent single-family homes is rising, and builders are focusing on including layouts and amenities that will appeal to today’s renters.³ “This is an attractive segment to allocate capital, which also ultimately grows overall housing stock,” Chang says.

Finding Today’s Opportunities

Investors interested in the residential space need to understand how different the market is regionally and among different types of properties, Ray says. “Disparity remains the defining characteristic of the U.S. housing market today,” he says. “While certain challenges are intensifying, new opportunities continue to emerge.”

Mixed-density developments—which offer a range of unit types and amenities in prime locations—are growing in popularity among renters. They are also providing institutional investors new residential investment options, widening the pool of opportunities and allowing for enhanced portfolio diversification. 

Property type is not the only important consideration. Understanding local market dynamics is also key. While headline numbers show population growth focused in many warmer southern states, finding the best opportunities requires bottom-up research.

“The factors influencing the movement of people and capital to Florida, Texas and other states remain present, but identifying tactical opportunities is more complex due to current macroeconomic conditions and localized supply dynamics,” Ray says. “Our recent investments range from Indianapolis through the Washington, DC area to Arizona.” 

For many investors, rising prices and relatively high rates may seem like an impediment for generating returns in today’s residential housing market. But Chang says, “Investors should leverage strong residential market expertise and careful research to identify appealing investments that ultimately can be well-positioned to capture this market’s specific opportunities.” 

This article was previously published on partners.wsj.com on October 6, 2025. Custom Content from WSJ is a unit of The Wall Street Journal Advertising Department. The Wall Street Journal news organization was not involved in the creation of this content.

Endnotes

¹ “S&P CoreLogic Case-Shiller U.S. National Home Price Index,” Federal Reserve Bank of St. Louis, May, 2025.
² “Later Life Milestones Reshaping Homeownership in the US,” John Burns Research and Consulting, Q2 2024.  
³ "Quarterly Starts and Completions by Purpose and Design,” U.S. Census Bureau.

Disclaimer

This material is intended solely for Institutional Investors, Qualified Investors and Professional Investors. This analysis is not intended for distribution with Retail Investors.  

This document has been prepared by MetLife Investment Management (“MIM”)¹ solely for informational purposes and does not constitute a recommendation regarding any investments or the provision of any investment advice, or constitute or form part of any advertisement of, offer for sale or subscription of, solicitation or invitation of any offer or recommendation to purchase or subscribe for any securities or investment advisory services. The views expressed herein are solely those of MIM and do not necessarily reflect, nor are they necessarily consistent with, the views held by, or the forecasts utilized by, the entities within the MetLife enterprise that provide insurance products, annuities and employee benefit programs. The information and opinions presented or contained in this document are provided as of the date it was written. It should be understood that subsequent developments may materially affect the information contained in this document, which none of MIM, its affiliates, advisors or representatives are under an obligation to update, revise or affirm. It is not MIM’s intention to provide, and you may not rely on this document as providing, a recommendation with respect to any particular investment strategy or investment. Affiliates of MIM may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives) of any company mentioned herein. This document may contain forward-looking statements, as well as predictions, projections and forecasts of the economy or economic trends of the markets, which are not necessarily indicative of the future. Any or all forward-looking statements, as well as those included in any other material discussed at the presentation, may turn out to be wrong.

All investments involve risks including the potential for loss of principle and past performance does not guarantee similar future results. Property is a specialist sector that may be less liquid and produce more volatile performance than an investment in other investment sectors. The value of capital and income will fluctuate as property values and rental income rise and fall. The valuation of property is generally a matter of the valuers’ opinion rather than fact. The amount raised when a property is sold may be less than the valuation. Furthermore, certain investments in mortgages, real estate or non-publicly traded securities and private debt instruments have a limited number of potential purchasers and sellers. This factor may have the effect of limiting the availability of these investments for purchase and may also limit the ability to sell such investments at their fair market value in response to changes in the economy or the financial markets.

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¹ As of June 30, 2025, subsidiaries of MetLife, Inc. that provide investment management services to MetLife’s general account, separate accounts and/or unaffiliated/third party investors include Metropolitan Life Insurance Company, MetLife Investment Management, LLC, MetLife Investment Management Limited, MetLife Investments Limited, MetLife Investments Asia Limited, MetLife Latin America Asesorias e Inversiones Limitada, MetLife Investment Management Japan, Ltd., MIM I LLC, MetLife Investment Management Europe Limited and Affirmative Investment Management Partners Limited.