2025-2026 Might Be One of the Best Stretches to Purchase Multifamily Since 2010-2011

[Scott Trench]

Every year, I post a macro analysis/predication for the upcoming year for multifamily real estate. If curious, here are the last two: 

Jan 2023: Multifamily Real Estate is At Risk of Crashing

Feb 2024: Multifamily is at High Risk of Continuing It's Historic Crash

I think that the title for my 2025 analysis (likely Jan/Feb publication will be something more like:

Multifamily is Finally Going to Hit Rock Bottom in Q2/Q3 2025 - Get Ready to Buy a LOT of it

As usual, I like to publish my draft thoughts here to get input from key players in the space and these forums, especially folks like @Brian Burke, to see if I am missing any high level areas, before I get into the weeds and look at the data more deeply and regionally. 

Here are the key themes I'm seeing get set up for 2025: 

Interest Rates Will be Holding Steady or going up: The yield curve (finally) uninverted this week, when the Fed signalled they will be more cautious about raising rates. But, to normalize, the 10-year will eventually trade at a 100-150 bps spread to the FFR. I am unconvinced that the new administration will meaningfully address the deficit and US credit will continue to erode gradually, contributing to rising rates. Further, long-term upward pressures on inflation remain, and will cause the Fed to be cautious with interest rates. 

Supply will be a Tale of Two Halves: 

In the multifamily sector, we will see another year of near-record setting supply hit the US. But, this will be front-end weighted and gradually slow towards the back half of the year. Expect another brutal year for investors in the South and Southwest, particularly in Texas and Florida, and particularly in Austin, TX - perhaps the worst positioned market in the United States for returns in year 2025. 

In the second half of the year, market by market, the supply will slow to near record lows, which will be a key theme in 2026. Expect YoY rents to stay flat or decline slightly in the first 6-9 months of 2025, and for them to start growing YoY materially in Q4. 

2026 will see rents explode - I think they could even grow as much as 10% YoY. We will only see ~240,000 units delivered in 2026, a much more moderated level. If interest rates stay high, and I think they will, we will see huge tailwinds for rent growth - to the point where "the rent is too damn high" people will begin to get extremely disgruntled and rowdy over the course of 2026. 

No trigger will materially change demand: 

What's notable about the last two and a half years is that rents have largely stayed flat. This is not normal in a rising interest rate environment. When interest rates rise, in a balanced market, rents should rise, as the alternative to renting - buying a home - becomes that much more expensive. We have not seen rents rise because of the above discussion on new construction. Demand for multifamily has been going up. It's just been met, or more than met, by the new construction. When new construction slows, demand will continue to remain strong, and that is what will drive rents up in 2026 and maybe Q4 (possibly Q3 in some markets) in 2025. 

Expenses will level off: 

Multifamily operators have been plagued by expense increases in the form of taxes and insurance, for the last few years, especially in the south, and especially in Florida and Texas. These increases will likely slow to pace more in line with inflation. Operators who were able to kick the can down the road may see huge increases with this year's insurance renewal or property tax bill, but there's no reason to expect another year of massive surges in operating costs. 

So What: 

So what do we do with the above, if you agree with my analysis? 

If you invested in large multifamily 3-4 years ago via syndication in the South, Southwest, or other boomtown: You are cooked. You've likely seen a 30-40% decline in asset value that could decline another 5-10% by end of year 2025. From the now, much lower, valuation, you have a path to recouping your capital over the next 5-7 years, but this is a disaster. It's also possible that you may be forced to sell by your lender. Buckle up, and prepare for total loss, or an additional capital call or two in 2025. This is especially true for investors in large Texas and Florida markets, with Austin, TX, perhaps being the worst positioned market for 2025 in the country. Consider petitioning your GP to stop their side business of disseminating long-form life, parenting, and fitness advice on Twitter and focus on salvaging what can be salvaged of the current portfolio.

If you are considering buying: Squirm a little longer. Sit on your hands a little longer. The market, if I'm right, may bottom out in Q3 2025. The folks who bought 3-5 years ago, as discussed, are cooked, and the market is likely to be ripe with many, many deals. Cash will be king, and buying in the 2H of 2023, particularly in late Q3 and Q4 has a reasonable shot at being at the bottom, or close to it, of this cycle. There is every reason to believe in strong rent growth in 2026, and those who can stockpile cash and go in with reasonably low leverage have a great shot at seeing high returns in the first year of their hold. 

I believe that those who buy multifamily in late 2025 and early 2026 have a chance at amazing returns relative to most other asset classes over the back half of the 2020s. 

Let me know what thoughts/reactions you have here, and I will incorporate into my more detailed blog publication coming in a few weeks.

[Jay Hinrichs]

the key will be breaking the Broker code its one thing for Brian to get a look at good deals its another for the average investors 

[Brian Burke]

@Scott Trench you and I don't always 100% agree on everything, but I think you nailed this one.  As you know, I sold 3/4 of my portfolio (thousands of units) right before the market tanked in 2022 and I haven't bought anything in over 3 years.  During that time I've often described the multifamily market as a traffic collision at a 4-way intersection where you had (lack of or negative) rent growth coming from one direction, and from the other directions: cap rates, expenses, and interest rates.  All lights were green and there was a pileup, leaving behind a mess of twisted metal and broken glass, and a few personal injuries to boot.

The syndicator crowd coined the phrase "survive until '25" under the hope that by 2025 interest rates would correct and their deals would be fine.  I don't expect that to work out for them.

My phrases are: End the dive in '25.  It's fixed in '26. Investor heaven in '27, and if you wait until '28 it'll be too late. '29 will be like a fine wine.  Git 'er done in 31--time to sell and take some profits.

Before "the market" can go up, it first has to stop going down.  I think that '25 will be a transition year ("end the dive in '25") for the reasons you stated--construction will fall off in Q2-3 but demand will remain...that sparks rent growth.

Interest rates:  Yes, flat to up. For those holding hope they will fall and save existing deals, don't hold your breath. Existing deals will instead be saved by NOI growth driven by rent growth--if you have the staying power to hold on long enough.

Supply:  High deliveries remain today mostly because of "hang over" from projects that are taking longer to complete than developers (and industry analysts) expected.  New deliveries are hard to get out of the ground because rents aren't high enough to support the projects at today's costs and interest rates.  Another tailwind to rent growth.  And the reason why your "tale of two halves" will play out as you described.

Demand:  This has actually been high almost all along, but rent growth hasn't materialized in response due to high levels of new supply.  That will change in 2H25 in a lot of markets.

Expenses:  Leveling off and must be accepted as the new normal.  No longer can buyers underwrite to $1,000/unit payroll and $250/unit insurance expense.  Underwrite to reality, not what you hope costs will be, because they aren't going back down.

Post-pandemic vintage syndications:  You are mostly right, Scott, that these investors are cooked.  But not all of them.  Any syndicate that over-leveraged and/or has a near-term maturity will be very challenged to survive.  Syndicates that used lower leverage points and have far-out maturities (such as 2029 or later) are likely to survive as long as they don't run out of cash to maintain the assets for longer-than-planned hold times.  For syndicates with loan maturities after 2030, they even have a shot at making a positive return, and perhaps even a decent one considering what they've endured to get there.

Kicking the can down the road:  Owners and syndicators hoping they can kick the can down the road by negotiating loan maturity extensions are likely to be disappointed.  Lenders have been accommodative for the last couple of years because they were facing a declining market with no buyers.  They didn't extend loan maturities because they were looking out for borrowers--and the moment they feel the market is strong enough for them to liquidate the asset they will foreclose and/or force a sale to recover as much principal as they can.  Be careful about feeding additional capital into syndicates with short-term loan maturities if the only plan is to negotiate lender maturity extensions for another year.  Those may not pay off.

Buyers:  There is a fine line between the first mover and the last sucker.  Finding the exact bottom isn't easy but many have said it's already happened.  I disagree--there are more tough times ahead, but as stated above there is light at the end of the tunnel and this time it's not a train.  There is a case for buying well-located solid assets that produce immediate current cash flow at reasonable leverage.  I have yet to see one of these when underwriting to today's real costs, but I think it'll happen eventually.  One thing is for certain:  The basis in 2025 or 2026 will be a better starting point than 2022.  

Yes, timing really does matter in real estate investing...

[V.G Jason]

Quote from @Scott Trench:

Every year, I post a macro analysis/predication for the upcoming year for multifamily real estate. If curious, here are the last two: 

Supply will be a Tale of Two Halves: 

In the multifamily sector, we will see another year of near-record setting supply hit the US. But, this will be front-end weighted and gradually slow towards the back half of the year. Expect another brutal year for investors in the South and Southwest, particularly in Texas and Florida, and particularly in Austin, TX - perhaps the worst positioned market in the United States for returns in year 2025. 

Quote from @Brian Burke:

Yes, timing really does matter in real estate investing...

Best position for folks entering the SFR & MFH space though. I am ready! Have my first property in Austin closing on Monday, a second one almost under contract I think, it's great to add assets at the most precarious times in the greatest city in the world. As inventory trickles up, I am okay getting deeper. As I buy with a very long hold period, I believe my Austin properties will outlast me(yes, given to my kids).

 And yes, timing does matter. It's almost everything. Time in the market> Timing the market is not necessarily correct, neither is diversification. If you don't know what you're doing, 40-60% lump sum initially, 15-20% tranches in dollar cost averaging is best. 

If you know what you're doing,  go deeper not wider.