The Missing Middle: Market Data Signals the Next Opportunity

Interest rates have increased over the past week, influenced in part by Federal Reserve outlook, but more directly by global forces such as rising oil prices, inflation expectations, and resulting pressure on the 10-year Treasury.

A Market Shaped by Global Forces

This reinforces a key reality: housing is no longer purely tied to domestic policy, but increasingly influenced by global economic conditions. Despite this ongoing volatility, demand has not collapsed. Instead, buyers are adjusting, increasingly accepting that mid-6% rates may represent a longer-term baseline rather than a temporary spike.

Affordability Is Improving, But Not How You Think

At the same time, affordability is quietly improving and not because home prices are falling, but because wage growth is beginning to outpace price growth in many markets. This distinction matters. In prior cycles, affordability corrections came through price declines, often damaging existing investments. Today, the market is resetting in a more stable way, with incomes rising to meet housing costs. This dynamic supports pricing stability while allowing demand to remain intact, particularly for well-positioned product.

The Supply Shift & The Rise of the Missing Middle

We are also seeing a structural shift in supply. Office-to-residential conversion is increasingly being driven not just by market forces, but by government intervention with federal and local programs providing incentives, zoning changes, and even direct policy support to make these projects financially viable. The federal government and private institutions are actively selling and repositioning underutilized office buildings, many of which are being converted into large-scale multifamily housing. While this will add housing supply, it is heavily concentrated in apartment product, a sector that is already seeing elevated delivery and softening absorption in many markets.

This is where the “missing middle” becomes increasingly important.

Smaller-scale housing (duplexes, townhomes, and infill developments on subdivided lots) is less directly impacted by large institutional supply and better aligned with current demand trends. As buyers recalibrate toward affordability and efficiency, these product types offer a more attainable entry point for end-sure and investor alike while avoiding the saturation seen in large apartment projects.

Combined with improving wage-driven affordability, this creates a compelling environment for infill development: smaller lots, more efficient use of land, and housing that meets demand without competing directly with institutional multifamily supply.