Higher Borrowing Costs Split U.S. Property Market as Niche Sectors Attract Capital
U.S. real estate is under pressure as borrowing costs rise, with mortgage rates nearing 7.5% and higher Treasury yields weighing on housing affordability and REIT valuations. In the first quarter of 2026, all-cash purchases exceeded mortgage-financed transactions in seven of the 50 largest metropolitan areas. Investors continue to show interest in data centers and senior housing, though AI infrastructure projects face regulatory, financing, and construction risks.
Mortgage rates approaching 7.5% and climbing Treasury yields are squeezing affordability and pressuring REIT valuations. The Vanguard Real Estate ETF fell about 7% in a month, and real estate shares remain roughly 15% under their early-2022 peak. The Real Estate Select Sector SPDR Fund posted a near-flat one-year return by early October.
In the first quarter of 2026, cash-only deals outnumbered financed home purchases in seven of the 50 largest metro areas. Investors are still pursuing server campuses and senior-living properties, though AI-related infrastructure carries regulatory, funding, and construction hurdles. Demand has strengthened for top-tier office, retail, and apartment properties in certain markets, while costly financing limits new supply.
Higher borrowing costs could widen the gap between households that can pay cash and those needing mortgages, making homeownership harder for younger and lower-income buyers. Renters may face pressure if constrained construction limits supply. Investors and retirees with REIT exposure may see uneven returns, while capital flowing to data centers and senior housing could shape local development and services. The overall effect may depend on whether rates stabilize and whether new projects overcome financing and regulatory hurdles.