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The Housing Market Is Slowing the Economy
Here’s How Smart Capital Is Pivoting
Why Savvy Investors Are Rethinking Real Estate in 2025
Real estate is no longer boosting growth. It’s becoming a drag. With mortgage rates high, supply tight, and demand shrinking, the smartest investors are already adjusting.
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“If you're still underwriting like it's 2021, you're not investing, you're gambling.”
The Market Has Shifted and It’s Not a Blip
Moody’s just confirmed what many already feel: housing is no longer a tailwind. For investors still underwriting deals like it’s 2021, the warning signs are impossible to ignore.
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Let’s unpack the three biggest forces reshaping the housing market and how professional capital is responding.
1. High Mortgage Rates Are Crippling Demand
Eighteen months into elevated rates, the 30-year fixed is hovering around 6.7%—more than double the 2021 average. And rates aren’t expected to fall significantly anytime soon. Goldman Sachs projects 6.75% through Q4 2025.
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What’s the impact?
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Buyer demand is down 35% from the peak.
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Mortgage applications are back to 1995 levels.
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Homebuilders are using aggressive incentives like 3-2-1 buydowns just to clear inventory.
2. Inventory Is Frozen, and Supply Is Shrinking
Sellers are sitting tight. With 92% of current mortgage holders locked in under 5%, there’s little motivation to list. The data confirms it:
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New listings are down 18% year-over-year.
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Housing starts have fallen 19%, marking a 10-year low.
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That means even if buyers wanted to purchase, they’d face fewer options, many of which are overpriced and underwhelming.
3. Housing Is Becoming a Drag on the Broader Economy
Historically, housing contributes 15% to 18% of GDP. But in 2025, that number is falling. Price growth is expected to barely outpace inflation at 0.5% this year and 1.2% in 2026.
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Ripple effects already appearing:
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Consumer confidence tied to housing is falling.
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Commercial real estate construction is stalling.
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Lending, retail, and labor markets are feeling the slowdown.
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This isn’t a brief correction it’s a long, grinding reset.
What Smart Capital Is Doing Now
At Thrivegate Capital and among other forward-looking operators, here’s what’s changing:
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Exit cap rates are being underwritten 150 to 200 basis points higher than entry.
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Loan-to-value ratios are being capped below 60%.
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Fixed-rate debt or hedged variable debt is the standard.
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Market focus is shifting to renter-heavy metros with below-replacement-cost housing.
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Speculative boomtowns are being avoided altogether.
In This Arcticle
Explore the top three pressures slowing down the housing market, how it’s affecting the broader economy, and what the smartest investors are doing to mitigate risk and generate yield.
If you're still projecting appreciation, compressing cap rates, or chasing peak pricing, you're playing the wrong game. The rules have changed.
The investors who adapt now will own the next cycle. Those who don’t may not survive it.