The housing market is in uncharted territory as affordability is worse than it was at the height of the mid-2000s housing mania while the for-sale inventory is at a multi-decade low. The affordability challenges have been exacerbated by surging mortgage rates—now at 20-year highs—while the supply crunch has been caused in part by severely constrained new construction since the Global Financial Crisis.

Given this dynamic, existing home sales have plummeted as a share of for-sale inventory (though they still account for 70% of overall home sales). In many markets, selling an existing home today often requires an owner to accept a valuation well below the level homes in their area recently commanded. Homebuilders are thriving in this market as the competition from existing home sales has lessened sharply. Assuming long-term interest rates will be slow to decline, this dynamic could be around for a while. 

So, what does this mean for commercial real estate? The expansion of suburban rooftops is a tailwind for neighborhood and community retail centers, which have benefited from even less new development over the past decade-plus than the residential home sector. The shortfall of for-sale home inventory and ongoing mortgage affordability challenges may also bode well for multifamily properties, which likely will see fewer residents moving out to purchase their own home.