In his 1986 letter to shareholders, Berkshire Hathaway chairman Warren Buffet first shared his most famous investment principle:
Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable. And the market aberrations produced by them will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
That strategy has proven successful time and time again.
In 2012, real estate was the redheaded stepchild of the investment world. Average home prices were down 30%+ from the 2006 highs, and many wondered if prices would ever return to those levels. Thousands and thousands of investors had just been burned by real estate, and they were afraid to touch it again.
It was a textbook “be greedy when others are fearful” moment. And investors who took advantage of that moment made a fortune over the next few years.
You often hear real estate investors describe 2012 as a “generational buying opportunity,” with a subtle undertone implying that the good days are over.
But I think the good days are on the road ahead, not in the rearview mirror. The next generational buying opportunity is staring at us right now, particularly in multifamily.
And although there’s some uneasiness in the market, two primary drivers unrelated to fear are creating this opportunity:
The housing affordability gap
No new construction
Apartment demand and the affordability gap
The rent-versus-buy decision is the most skewed towards renting than it’s been in years. Just check out this graphic from Marcus & Millichap:
For nearly a decade, the affordability gap between renting and buying stayed around $300. Now, with an increase in home prices coupled with higher mortgage rates, the gap has widened by more than 4x to $1,300.
With homeownership out of reach for so many, including higher-income households, demand for rental units has stayed elevated, even as tens of thousands of newly-constructed units enter the market.
With so many new apartments constructed in the last few years, many experts were predicting that absorption rates (the rate at which new units are rented, or absorbed, by the market) would drop.
Instead, the opposite has happened:
A storyline in multifamily for much of the past year has been the record number of “completions” or brand new units coming online. An increase in supply usually results in a decrease in prices (rent), but with absorption so strong (indicating strong demand), rents overall have been mostly flat and have even started increasing again.
Now, there’s good reason to believe that the affordability gap will tighten some in the near future. The Fed’s impending rate cuts should lower mortgage rates, providing some improvement to home affordability.
But the gap likely isn’t going back to 2013-2019 levels. Outside of mortgage rates, there are other structural factors in the single-family home market that will keep prices there elevated.
So demand for apartments over the next few years is likely to remain high. And that’s not even accounting for the biggest chunk of Gen Z hitting adulthood and needing a place to live, further driving demand.
New construction drops off a cliff
In direct contrast to the new apartment construction bonanza of the last few years, very few new development projects are starting.
What does this mean? Starting in 2026, there will be significantly fewer new apartments coming to market.
Yardi just released their 5-year multifamily supply update for Q3 2024, putting some actual numbers to future apartment supply. And I was honestly shocked at their conclusions and revisions from just last quarter.
From the report:
Yardi Matrix development pipeline data continues to point to an overall deceleration in new multifamily development activity. New construction starts continued to decline, and have fallen off faster than anticipated.
Yardi now predicts that over 102,000 fewer apartment units will come online in 2026 and 2027, as compared to their estimates just three months ago.
And overall, they estimate that total completions in 2027 will be more than 40% less than in 2024. This is a massive hit to the overall supply of apartments.
Why could this be a generational buying opportunity?
Let’s put these two together:
Sustained / increased apartment demand + insufficient new apartment supply = skyrocketing rents
It’s Econ 101:
More people chasing fewer units
Demand outpaces supply
Prices go up
And since multifamily properties, like other commercial real estate, are valued based on their net income, explosive rent growth means net income increases, which means property values soar.
Not to mention the increased cash flow to the investors of these properties.
Now’s the time
I firmly believe that right now is the time to be loading up on multifamily. In a few years, I think we’ll look back at 2024 similar to 2012.
And I’m not alone here – some of the smartest multifamily investors I know (who made fortunes coming out of the Great Financial Crisis) have arrived at the same conclusion and are aggressively pursuing deals.
Of course, this doesn’t mean blindly buying any property for sale at any price. Even with massive supply and demand tailwinds, poor buying decisions can still sink deals. Deals need to pencil out, and make sense today.
So at Big Spring Capital, that’s exactly what we’re doing. We’ve kicked into overdrive pursuing deals in a major major market that flies under the radar of most multifamily investors. We want to be positioned ahead of the coming shortages and rent growth to help produce stellar returns for our investors.
I’ll be sharing more about this new market in the near future. But in the meantime, I’d love to hear your thoughts – do you think we’re currently looking at another generational buying opportunity in multifamily?