Why the Real Estate Cycle, Despite Its Short-Term Pain, Is a Beautiful Thing

The Beauty of the Cycle: Why Downturns Create Opportunity

At the start of 2025, the multifamily sector is absorbing the largest wave of new supply since the 1980s. According to the 2025 Multifamily Outlook by Freddie Mac, nearly 560,000 new units entered the market in the year ending in Q3 2024. This surge temporarily slowed rent growth, which increased by just 0.3% annually, and slightly elevated vacancy rates. But despite these shifts, occupancy remained strong at 94.4%, indicating that demand remains solid.

For investors, this stage of the cycle presents opportunities. When supply peaks and rent growth slows, many hesitate or exit the market. However, those who recognize the cyclical nature of real estate understand that downturns often set the stage for future appreciation.

Why Supply Surges Aren’t a Red Flag

The recent wave of new deliveries might seem concerning at first glance, but it follows a natural pattern that has repeated throughout history. Over the 12 months ending in Q3 2024, about 490,000 multifamily units were absorbed—one of the highest levels ever recorded, second only to the post-pandemic boom of 2021 and early 2022. This suggests that demand remains healthy.

When supply increases significantly, landlords often introduce concessions to maintain occupancy, temporarily limiting rent growth. But this is not a sign of weakness; it’s part of the market’s natural process of adjusting to new inventory. Once the market absorbs these units and construction slows, existing properties often regain pricing power, leading to stronger rent growth.

Vacancy and Rent Growth: Short-Term Pain, Long-Term Gain

Vacancy rates have edged up slightly, with projections suggesting they may rise to around 6.2% in 2025—modestly above the long-run average of 5.5%. While some may view this as a warning sign, it is often just a temporary period of adjustment. Many newly built apartments are still in their lease-up phase, meaning occupancy figures should stabilize as renters move in.

Certain regions, especially in the Sun Belt and Mountain West, are seeing higher vacancy rates due to an influx of new developments. However, these same regions are also experiencing strong job growth, which is one of the most reliable drivers of long-term multifamily demand. Investors who focus on local market dynamics can better assess whether higher vacancy rates are a temporary challenge or a sign of deeper imbalances.

The Construction Slowdown: A Catalyst for Stability

While supply peaked in 2024, the outlook for new development is shifting. The 2025 Multifamily Outlook reports that multifamily permits and starts in the first nine months of 2024 declined by 20% and 28%, respectively, compared to 2023. This slowdown is an essential part of the real estate cycle—when supply exceeds demand, developers pull back, allowing the market to reset.

For investors, this presents a window of opportunity. Well-located, stabilized assets may offer strong long-term value as competition from new developments slows. Over time, reduced construction activity allows the market to rebalance, easing pressure on rents and occupancy.

Property Values and the Investment Landscape

Since their peak in mid-2022, multifamily property values have declined by about 20%, according to Real Capital Analytics. However, the pace of decline slowed throughout 2024, indicating that values may be stabilizing.

Transaction volumes are expected to rise to around $370-$380 billion in 2025, up from an estimated $320 billion in 2024. This increase suggests that investors are adjusting to new market conditions and that more deals will emerge as property owners face refinancing deadlines.

For those willing to take a long-term view, this phase of the cycle presents an opportunity to acquire assets at prices that were out of reach just a few years ago.

Lessons from the Cycle: What Investors Should Consider

1. Monitor the Supply Pipeline – Understanding where new supply is concentrated can help investors identify markets with stronger rent growth potential.

2. Focus on Occupancy and Rent Strategy – In softening markets, maintaining occupancy may take priority over aggressive rent increases. Tracking local leasing trends can help inform strategy.

3. Adapt Financing Approaches – Interest rate volatility requires flexibility in structuring deals. Exploring alternative lenders or creative financing solutions can help make acquisitions feasible.

4. Invest in Value-Add Opportunities – Renovating properties to offer desirable amenities can attract tenants without requiring significant rent hikes.

5. Follow Regional Economic Trends – Markets with strong job growth and population inflows are likely to absorb new supply more effectively than those with slower employment growth. 

Embracing the Real Estate Cycles

At its core, the real estate cycle is a natural and necessary process. It resets pricing, creates new opportunities, and rewards those who remain patient and adaptable. While some may be deterred by short-term disruptions, those who take a broader view understand that market corrections often lay the foundation for long-term success.

Despite the temporary challenges that come with market shifts, multifamily real estate remains one of the most resilient asset classes. As the cycle continues, those who remain focused on fundamentals and data-driven decisions will be best positioned to capitalize on the next phase of growth.

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