From Boom to Bust: Predicting Market Cycles in Multifamily Real Estate

by | May 22, 2024 | Multifamily, Real Estate

Investing in multifamily properties is generally considered a safe bet – regardless of what’s going on in the world, people always need a place to live, right? But just like any other investment, investing in multifamily real estate is never a sure thing. Markets change. Property damage happens. Tenant sentiments shift. What if there was a way to plan for these woes and mitigate risks effectively?

In the movie The Big Short, based on the book by Michael Lewis (and true events), several investors accurately predicted the housing market crash in 2008, recognizing the signs of a housing bubble and the subsequent financial crisis. While much of the world foundered through economic devastation, these investors made out like bandits – Michael Burry reportedly made around $100 million for his firm, and John Paulson is said to have made Billions – with a B – for his, all from understanding financial dynamics and adapting to market cycles. 

While the events depicted in The Big Short are specific to the housing market, several key themes can be applied to multifamily real estate investing – learning from past mistakes, conducting thorough research, adapting to changing market conditions, and, perhaps the biggest takeaway, predicting market cycles. With a good understanding of multifamily market cycles, investors can plan for market fluctuations, and make more strategic investment decisions unique to the current phase. 


Understanding the Multifamily Market Cycle

Much like traditional real estate, multifamily real estate markets are cyclical. Simply put, periods of expansion are followed by peaks, which are followed by periods of contraction and eventual troughs. Let’s take a look at the phases of a multifamily market cycle and some investment strategies for each.

Expansion Phase: AKA the Boom Phase. During this phase, the multifamily real estate market experiences growth and, you guessed it, expansion. The number of renters is on the rise and demand for rental properties is high. 

Strategy: This period of growth is great for buyers and sellers alike – buyers have the opportunity to purchase high-demand properties, while sellers benefit from higher selling rates than other phases. Investors can also take advantage of this economic stability to improve and further develop properties. 

Hypersupply Phase: Nothing gold can stay – and when a period fraught with new construction and high demand for rental properties peaks, the cycle has reached the hypersupply phase. This period is usually denoted by a market saturated with rentals and waning demand. 

Strategy: Many investors try to exit the market at this stage and sell while prices are still high. Those who hold their properties benefit from coming up with ways to retain tenants versus searching for new ones.

Recession: If an area has a supply of multifamily properties exceeding the demand for those properties, it’s likely in the recession phase of the market cycle. New construction halts, rent growth is at or below inflation, and vacancy numbers rise. 

Strategy: For those with cash on hand, a recession is a great time to nab properties below market value, but keep in mind recessions are high-risk investment periods.

Recovery Phase: When the multifamily market has hit its darkest point, sometimes called the trough, the recovery phase sets in. Things start to improve: companies start to hire, rents improve, and vacancies begin to decrease. Financing might be difficult to come by at this stage, but sellers are often eager. 

Strategy: Those with spare cash may be able to grab properties at their best price and more easily than during other phases.


Key Indicators in the Multifamily Market Cycle

Booms and busts don’t just happen by accident or surprise – though sometimes it may feel like it. Many factors influence the market and one of the easiest ways to recognize market shifts is to look for key indicators. There were many indicators of the 2008 financial crisis in our Big Short example, including subprime loans and a rapid rise in house prices, leading to a housing bubble. Here are a few indicators to look for in the multifamily real estate market cycle:


    • Rent Increases: Rents are on the rise.
    • Decreasing Vacancy Rates: Demand is greater than supply; properties in this phase of the market cycle are unlikely to sit empty for very long. 
    • Rising Employment Growth: New jobs and new companies usually signal an influx of new workers, many of whom will look to the rental market.
    • High Rates of New Construction: A lot of new multifamily properties going up, indicating an increase in demand for rentals.


    • Vacancies Increase: Supply is greater than demand, making it more difficult to fill properties.
    • Decline in rent growth: Rents are up, but not growing at the rate they have been.
    • New builds not filling: New properties are sitting empty for longer periods.


    • Vacancies Increase: It’s a renter’s market – supply is much greater than demand.
    • Construction halts: No new construction is starting in the area.
    • Negative Rent Growth: Rental rates are growing at a slower rate than inflation 


    • Flat to Negative Rent Growth: Rent growth isn’t rising substantially, but remains close to inflation levels.
    • Rising Employment Growth: Companies are hiring, and new companies are moving into the area, driving up demand for rentals.


Strategies for Anticipating Market Shakeups

When navigating the multifamily real estate market, it’s vital to anticipate what’s next. To stay ahead of market shifts and identify promising investment opportunities, investors can employ a range of tried and true strategies:

  1. Conduct Market Research: Performing a deep dive into historical data and local market trends can help investors anticipate market shifts and identify investment opportunities. Understanding the unique dynamics of specific markets and staying informed about everything from demographic changes to economic trends can help investors gain valuable insights into the multifamily real estate market and make informed investment decisions.
  2. Build Relationships with Industry Experts: What’s better than what you know? Who you know. Networking and collaborating with industry experts, including experienced investors, real estate pros, and market analysts, can help investors navigate through market cycles and make informed decisions. Building strong relationships within the real estate community fosters knowledge sharing and helps investors stay ahead of market trends.
  3. Diversify: Diversification is one of the best ways to mitigate against risks in multifamily real estate. Spreading investments across different markets, property types, and geographic regions can help mitigate the impact of market fluctuations and reduce overall portfolio risk.
  4. Update Skills and Tools: Staying ahead of shifts and trends in the market requires continuous learning and improvement. Investing in knowledge, skills, and abilities in the multifamily real estate space is essential. Check out relevant courses, webinars, books (investing guru Warren Buffett credits much of his success to the 5-6 hours per day he spends reading), and seek guidance from your network. Additionally, embrace the latest technology, software, and platforms to optimize your processes and broaden your market reach.



With a keen understanding of the market cycle, investors are better equipped to make the right investment decisions at the right time. Experience and time are the best teachers, but having a firm grasp on the multifamily real estate cycle is a great way to strategize effectively and make informed investment decisions.

For more information or questions about multifamily investments contact us!

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