High mortgage rates are crushing affordability and capping any potential upside in housing activity. However, the market has stabilized at a 40-year low in turnover, suggesting a baseline of activity from people who must move (e.g., job relocation, family changes) regardless of the challenging rate environment. This creates a market that is stuck in neutral.

A staggering 56-58% of middle-market companies brought to market annually for the past three years did not sell, a dramatic increase from the historical average of 10%. This statistic reveals a massive and persistent valuation gap between what sellers expect and what buyers are willing to pay.

The historically low number of home sales isn't just about buyer affordability. A major factor is seller reluctance; existing homeowners are "locked in" by their low-rate mortgages and find it financially unattractive to sell and buy a new property at current higher rates.

The private equity market has abundant capital and willing companies, yet transactions are stalled. This is because General Partners (GPs) fear selling at low returns and Limited Partners (LPs) fear over-commitment due to liquidity concerns, creating a gridlock where no one wants to act.

The US housing market is frozen not by insolvency but because homeowners are locked into low mortgage rates. With transactions at crisis-era lows but driven by non-discretionary events like death and divorce, pent-up demand creates a "coiled spring" scenario for when rates ease.

PE firms are stuck in software investments like homeowners with low-rate mortgages. Assets were bought with cheap financing at high prices that are no longer available. Sellers can't accept lower prices, and buyers can't get financing to meet the asking price, creating a market-wide exit logjam.

A significant, under-the-radar headwind for tech M&A is the instability in the private credit market. Private equity firms, which rely on borrowing to finance large software acquisitions, face higher loan costs and investor uncertainty about the long-term value of software companies. This financial friction is stalling deals that would otherwise happen.

The gap between existing mortgage rates (under 4.25%) and new rates (over 6.25%) is over 200 basis points. This spread, which disincentivizes homeowners from selling, has persisted for three consecutive years. Historically, the gap only exceeded 100 basis points for a total of eight quarters over the past four decades, making the current situation a major anomaly.

Howard Marks highlights a critical issue in private equity: a massive overhang of portfolio companies needing to be sold to return capital. Higher interest rates have made exits difficult, creating a liquidity bottleneck that slows distributions to LPs and commitments to new funds.