An office building in Chicago sold for $68 million ten years ago. Today it sold for $4 million.
The reason is high mortgage rates that keep going higher. Office buildings don't get a 30-year fixed-rate mortgage, where your payment is locked for three decades.
Instead, they get five-year loans that readjust once the five years are up. In 2026, more than $1 trillion of those commercial loans are readjusting while interest rates are a whole lot higher.
The result is a fire sale, with commercial buildings around the country going for 80% to 90% off, and sometimes 95% off.
Real estate investors aren't the only ones feeling it. Mortgage rates are going up again in 2026, and housing is now the least affordable it has ever been for anyone trying to buy a house or sell one.
So commercial real estate is cracking, and the housing market isn't, at least not yet. Understanding why one broke and the other only bent is what makes you a better investor in both.
That's the whole idea behind ABB: Always Be Buying, the free e-book from Briefs Finance CEO Jaspreet Singh on how his team keeps investing through markets like this one.
Why Office Buildings Are Cracking Before the Housing Market
There are two reasons, and the first is the loan.
Pretty much every real estate investor refinanced in 2020 and 2021, when interest rates were at their lowest levels ever. Refinancing means swapping your old loan for a new one, and back then the new one came with a rock-bottom rate.
Those same five-year loans are coming due today, and the replacement loan costs a whole lot more.
The second reason is the bigger one. Office and commercial buildings aren't valued on what people think they're worth but on how much money they make, and they're making less than they used to.
What Is a Cap Rate? The Math That Cut This Building's Value by 72%
A cap rate is the return you'd earn on a building if you bought it with all cash, and it's the number that turns a building's income into its price.
In 2020, This Building Cleared $110,000 a Year
Say you bought an office building in 2020, before the pandemic, and it brought in $400,000 a year in rent from its tenants. Running it costs money too, between property taxes, insurance and the rest, so assume $150,000 a year in expenses.
That leaves $250,000. In real estate, that figure is called net operating income, or NOI: the rent minus the operating costs, before you pay the mortgage.
Commercial buildings are valued by applying a cap rate to that NOI. At a 5% cap rate, you take the $250,000 and divide it by 5%, and the building is worth $5 million.
The cap rate formula is that simple: building value = NOI ÷ cap rate.
Put 20% down, which is $1 million, and borrow the other $4 million. In 2020 that loan would have run something like 3.5%.
At 3.5%, the loan costs about $140,000 a year. The building makes $250,000, you pay the bank $140,000, and you keep roughly $110,000 in profit.
That's how commercial real estate worked for years. Then 2026 happened.
In 2026, the Same Building Is Worth $1.4 Million
During the pandemic, people stopped working in the office as much. Many businesses came back, but not to the same footprint: some went hybrid, some took smaller offices, and some are using AI to run with fewer people.
So many office buildings still sit 40% to 50% empty. Instead of $400,000 a year in rent, the building might only bring in $250,000.
Costs didn't fall to match. Property taxes are higher, insurance is higher and labor is higher, so expenses went from $150,000 a year to something like $180,000.
NOI is now $70,000 instead of $250,000. Run that through the same 5% cap rate and the building is worth $1.4 million.
| 2020 | 2026 | |
|---|---|---|
| Rent | $400,000 | $250,000 |
| Expenses | $150,000 | $180,000 |
| Net operating income | $250,000 | $70,000 |
| Value at a 5% cap rate | $5,000,000 | $1,400,000 |
| Loan balance | $4,000,000 | $4,000,000 |
You still owe $4 million on a building that's now worth $1.4 million. That's being underwater, owing more than the property is worth, and in this case by $2.6 million.
The Refinance That Loses $230,000 a Year
Now the five-year loan comes due, and you go back to the bank for a new $4 million loan to pay off the old one. Many lenders will say no, because the building is only worth $1.4 million and you're underwater.
If you're fortunate enough to find a lender that says yes, the new rate is 7.5% instead of 3.5%. A $4 million loan at 7.5% costs $300,000 a year, and the building only makes $70,000.
So you hand the bank all $70,000 of your NOI and still have to come up with $230,000 a year out of your own pocket, every single year.
That's why developers are doing three things right now:
- Handing the keys back to the bank, because they don't want to keep losing money on the building
- Selling at huge discounts, 80%, 90%, sometimes 95% off
- Letting the property go into foreclosure, where the lender takes the building because the loan isn't being paid
The Banks Are Next in Line
The first industry getting hurt is real estate developers, who are either losing money or losing the properties. The second is banking.
Banks don't like to lose money. When a bank lends $4 million and gets back a set of keys to a $1.4 million building, the bank is now the one underwater.
About half of all commercial real estate debt is set to readjust in the next 24 months.
Jaspreet has been saying this for years: if 2025 and 2026 arrived with higher rates instead of lower ones, developers would be forced to hand their keys back. That's now happening: mortgage rates are going up again, and the pain in commercial real estate is spreading.
More defaults means more developers get hurt, and then more banks get hurt. Nobody knows when, but enough of it could cause real pain in the banking sector.
That pain is worth watching as an investor, because pain in one industry creates opportunity for somebody else. Some banks will take the hit and come back, and that can set up an investment opportunity.
Others won't recover, and investors who bet on the wrong one can get hurt too. More real estate deals are going to come onto the market as well.
The 2026 Housing Market Has Pressure, Not Cracks
Offices aren't the only place rates are biting, because as mortgage rates go up, housing affordability goes down and fewer people buy houses.
Home sales have slowed down sharply, and realtors are feeling it first. During the pandemic, everyone and their mom seemed to get into real estate, and now the industry is seeing its biggest drop in realtors since the 2008 housing market crash.
The mortgage business is shrinking too, with layoffs across the industry because far fewer people are taking out mortgages or refinancing.
What a $400,000 Mortgage Costs in the 2026 Housing Market
Say you need to borrow $400,000 to buy a house.
| Mortgage rate | Monthly payment | Change vs. 3% |
|---|---|---|
| 3% (a few years ago) | $1,686 | - |
| 6% (a few months ago) | $2,398 | +$712 |
| 7% (today, sometimes more) | $2,661 | +$975 |
Home prices aren't necessarily falling across the country. But housing affordability is at the lowest level in history, because buyers have to borrow more money and pay a higher rate on all of it.
Why Homeowners Won't Sell in the 2026 Housing Market
Higher rates make houses harder to buy, and they make them harder to sell too.
Right now, six out of seven mortgages in the United States carry a rate under 6%. Most are under 5%, and many are under 4%.
So a lot of people are sitting in a house with a 3.5% mortgage, and they'd love to move or upgrade. But a new house costs more and so does the loan on it, so they'd rather stay put for a few more years than give up that payment.
More homeowners are starting to cut their prices to get buyers, because houses are sitting on the market longer. The typical house now sits for about two months, compared with a fraction of that a few years ago.
Is the Housing Market Going to Crash? It Depends on Who Wins This Race
Whether pressure turns into cracks depends on what comes next: how long interest rates stay this high, and what the economy does.
If home prices stay where they are and the economy grows, that's fine. When incomes rise, a house doesn't have to get cheaper to become more affordable, because a $400,000 to $500,000 house just feels smaller to a buyer who makes more money.
That's still a guess, and home builders are the ones stuck making it. Building a house takes 12 to 24 months, so a builder has to predict where the economy will be before deciding whether to build today.
Right now builders are losing confidence. They're worried mortgage rates stay higher for longer, and that higher rates mean more pain in the economy and the housing market.
Why pour money into a new subdivision if the houses might not sell at a profit?
So the dilemma in the housing market comes down to one question: does affordability win, or does the economy win?
- If home prices stay high and mortgage rates keep climbing, affordability becomes a bigger and bigger problem, and that can eventually crack the housing market and spread the pain to the banks.
- If jobs grow and incomes grow, people feel wealthier and can afford houses even if houses never get "cheaper."
That second outcome is the one the Trump administration is hoping for. The race is still undecided, and that's the whole dilemma in housing right now.
Your House Is a Liability. Treat It Like One.
If you're thinking about buying a house, Jaspreet's rule is that your house is a liability, not an asset, meaning it takes money out of your pocket every month. So don't try to time the market, and buy a house you can afford instead.
Not timing the market is the same habit behind his free e-book, ABB: Always Be Buying. It shows how his team keeps putting money into investments on a schedule instead of waiting for the perfect moment.
"Can afford" means three things:
- The down payment: at least 20% to put down
- The moving costs: the movers, the renovations and the furniture for the house
- The monthly cost: the mortgage, the property taxes and the insurance, with money left over to save and invest every single month
If you can do all three, buy the house and make memories in it. The house isn't there to make you rich - your investments are.
