The Next Cycle
Real estate markets move in cycles, and history shows that those who strategically enter at the bottom are handsomely rewarded. Looking back at the early 1990s recession, the dot-com bust of the early 2000s, and the Global Financial Crisis of 2008, each downturn presented unique acquisition opportunities that led to significant appreciation and net operating income growth during the subsequent recoveries. Today, multifamily property values have seen a significant correction, falling approximately 20% from their peak. We believe the evidence strongly suggests we are at or near the bottom, with clear indicators emerging: rental rates are beginning to grow, absorption levels remain robust, and new supply is at its lowest in 15 years.
Multifamily construction activity is expected to remain tempered over the short term, while leasing activity is forecasted to be at or near previous growth cycles. The multifamily supply pipeline is at its lowest since the GFC. Multifamily construction starts peaked in 2022 and have fallen since. In most markets, new supply will not be a headwind for the foreseeable future. Moderating supply should support stronger rent growth during the next several years.
Most recently, tariffs are presenting a challenge to the multifamily construction sector. Increased materials costs and high interest rates for construction loans is creating a window of opportunity for investors to make strategic acquisitions at values sometimes well beneath the current replacement cost. The acquisition of assets with built-in equity could allow investors to achieve strong returns as market conditions improve and properties appreciate.
Currently, renting offers a compelling affordability advantage over homeownership, a trend further amplified by powerful demographic shifts and persistent supply imbalances. Since 2010, the U.S. has produced 30% fewer total housing units than total household creations. This fundamental supply-demand gap is compounded by the fact that two-thirds of millennials who aspire to own a home have no savings for a down payment. With the peak first-time home-buying age now 38 (up from 29 in the 1970s) and the average age of first-time marriage at 32 (up from 22), the traditional path to homeownership is increasingly delayed. This combination of factors, evidenced by new single-family mortgage applications being at their lowest since the 1990s, continues to funnel a significant and growing portion of the population into the rental market.
Furthermore, a resilient U.S. job market, characterized by low unemployment and solid wage growth, continues to underpin renter strength. Our renters are financially sound, with national renter households averaging $8,200 in monthly income in 2024. Resident incomes have been rising faster than rents over the past three years. Rents increased by 1.3% in 2024 and 28% over the past five years, while incomes have risen by 7.3% in the past year and 36% over the past five years.
Lastly, it’s a misconception to believe that every renter is merely awaiting an opportunity to purchase a single-family home. Even if interest rates subside or home prices decline, it will not result in the mass exodus of hundreds of thousands of renters to purchase homes. For many households, renting is not a transitional step towards homeownership. Remember, single-person households are the largest multifamily renter type. Most of these individuals enjoy the flexibility and amenity-rich living offered to multifamily living an do not have the desire or need to purchase 4,000 square foot suburban homes.
Looking ahead, the confluence of a market correction that has reset valuations, an increasingly favorable supply-demand dynamic, and enduring demographic shifts favoring rental housing positions multifamily as a sound investment class. For investors with a long-term vision, this period offers a distinct opportunity to acquire high-quality assets at attractive price points, poised for significant appreciation and stable income generation as the next cycle fully unfolds.
