Supply, Stalemate, and Strategy

Supply, Stalemate, and Strategy: A Data-Centric View on U.S. Housing with Chris Nebenzahl

 

Locked-In America: The Housing Market’s Great Stall

The U.S. housing market isn’t just tight, it’s inert. As Chris Nebenzahl, Housing Economist at John Burns Research and Consulting, puts it, America is experiencing a “lock-in effect” where millions of homeowners, beneficiaries of sub-3% mortgages from a prior era, have no incentive to move.

Transactions, both in the for-sale and rental segments, are stalling. Inventory is constrained by economic rationality, not lack of demand. “The housing market thrives on constant moves,” Nebenzahl says. “But right now, across the housing spectrum, people are locked in.”

 

The result: record-low turnover in single-family and multifamily rentals, with occupancy propped up by immobility rather than expansion. In such a frozen ecosystem, prices remain surprisingly buoyant despite high rates – a divergence from textbook supply-demand dynamics.

 

The 5.5% Mortgage Threshold: A Reopening Trigger?

The most actionable insight from Nebenzahl’s research: housing won’t truly unfreeze until mortgage rates return to a “magic number” of approximately 5.5%. That’s the psychological and financial line at which the lock-in effect starts to meaningfully ease, based on historical demand models and borrower behavior.

 

With mortgage rates stuck between 6.5% and 7.5%, this still feels a long way off. Until that number is achieved, or until housing prices decline significantly, mobility will remain stifled. Notably, certain regions such as Florida, Texas, Arizona, and Tennessee are already seeing modest price declines, indicating that some pressure is starting to break through.

 

But Nebenzahl is clear: this isn’t a repeat of 2008. “Nationwide, I think we’ll see maybe a 1–2% decline in home values. We’re nowhere near GFC territory,” he says. The real estate crash of yesteryear was a systemic event; today’s stalling is more friction than fissure.

 

Bifurcation in Geography and Performance

The story of U.S. housing is increasingly one of regional divergence. “It’s a tale of two markets,” Nebenzahl observes.

• Northeast, Midwest, parts of the West Coast: Supply remains tight, pricing is stable or even rising, and rent growth is positive particularly in cities like Boston, Chicago, and San Francisco.
• Sunbelt metros like Austin, Dallas, Denver, Nashville: Facing ongoing rent declines and incentives as a wave of multifamily supply catches up with (and briefly outpaces) demand.

What’s driving this? In one word: inventory. “Austin, for example, has seen the most supply as a percentage of existing stock. That’s softened rents, even though demand remains strong.”

 

The Quiet Strength of Rentals

Despite oversupply in some markets, multifamily is holding up. Rents have stabilized, absorption remains healthy, and rent-to-income ratios are generally favorable. Nationwide, that ratio sits around 25%, well below the 30% threshold for ‘rent burden.’ Even in supply-saturated markets like Austin, ratios hover near 20%, laying a foundation for recovery.

 

Why this resilience? A few reasons:

1. Affordability gap: With for-sale housing out of reach for many due to both price and interest rates, renting becomes the only viable option.
2. Mobility hedge: In uncertain economic times, the flexibility of a 12-month lease is more appealing than a 30-year mortgage.
3. Demographic tailwinds: New household formation, though potentially threatened by labor market softness, is still skewing towards rentals.

“The lion’s share of household formation is going into rental,” Nebenzahl says. “Because of affordability challenges, and because people are hesitant to make long-term commitments.”

 

Cracks in the Foundation: Where Distress May Surface

Still, there are stress points, especially in assets underwritten in the froth of 2021.

“I’d be watching older vintage assets in oversupplied markets,” he says. “Many of those were acquired with floating rate debt and pro formas that didn’t anticipate interest rates going from 0% to 5.5% overnight.”

 

These deals are now colliding with debt maturities, declining rents, and underwriting models that assumed permanent appreciation. That said, he does not forecast widespread defaults – more likely, selective distress in marginal players.

 

Risks on the Horizon: Immigration, Labor, and Fragility

Beyond rates and rent rolls, Nebenzahl highlights three structural risks that CRE professionals should monitor closely:

1. Immigration policy: Rental demand and construction labor both depend heavily on immigrant populations. Recent restrictions, including H1-B visa tightening and deportations, have had a measurable cooling effect. “Immigrants rent across the income spectrum,” he notes. “A slowdown hits both the demand side and the build (supply) side.”
2. Aging trades workforce: With fewer young workers entering skilled trades, the industry faces a slow-burning capacity problem. The average age of electricians, plumbers, and roofers is steadily rising, and backfilling this labor pool remains an unsolved challenge.
3. Tariffs and supply chain volatility: Tariffs on building materials could push up construction costs 2–3%, and as Nebenzahl notes, those costs would disproportionately impact steel-heavy high-rise multifamily more than low-rise SFR or garden-style.

 

Monetary Fog: The Fed, Rates, and Global Perception

Much of the future, however, depends on interest rates and here Nebenzahl expresses qualified caution. While he believes we are “above neutral” levels now, he doesn’t expect a return to near zero interest rates. “Even in a mild recession, I don’t see the 10-year Treasury falling below 3–3.5%,” he says.

 

But more troubling is what he calls the “qualitative fog”: rising geopolitical tension, politicization of monetary policy, and eroding investor trust in American stability. “We’re hearing less ‘there is no alternative’ about the U.S.,” he says. “Foreign capital is pausing. Not exiting – but pausing.”

That loss of automatic confidence in U.S. housing and Treasuries could ripple through cap rates and investment demand far more than a 25-basis-point Fed decision.

 

What to Watch: Nebenzahl’s Key Indicators

For professionals managing exposure in this market, Nebenzahl advises watching:

• Job growth – Still the most reliable proxy for household formation.
• Household formation – Where people are forming new households, rentals are likely to benefit.
• Treasury market confidence – A real-time referendum on U.S. economic credibility.

 

Final Thoughts: Where He’d Put $1 Million Today

Asked how he’d allocate $1M today, Nebenzahl doesn’t hesitate: “I’d split it between Midwest and Sunbelt rentals, multifamily and build-to-rent.”

 

He’s not holding cash. He’s not forecasting a crash. He’s betting on rental fundamentals and long-term demographic logic.

 

“There’s dry powder waiting to be deployed,” he concludes. “And multifamily is still one of the most institutionally resilient plays in U.S. real estate.”

 

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In this series, I cut through the noise to examine how shifting macroeconomic forces and rising geopolitical risk are reshaping real estate investing.

 

With insights from economists, academics, and seasoned professionals, this show helps investors respond to market uncertainty with clarity, discipline, and a focus on downside protection. 

 

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