Not long ago, an investor asked me: with the housing market this bad, why are you still building? The question stopped me for a moment. In that instant I realized that the "real estate market" people talk about and the real estate market I see on the ground every day are simply not the same market.
The core thesis of this article is: in this real estate cycle, multifamily apartments fell earlier than single-family homes, so they will also exit the bottom earlier. Over the past three to four years, multifamily has already been through a crash. And the gap in new supply caused by high interest rates will persist for the next two years—which is exactly what will fuel the apartment rebound.
Here is the roadmap. First, I explain why single-family homes and apartments are "two different species." Next, I show how the lag in the development cycle creates a supply gap. Then I analyze why institutional investors' pricing logic lets the apartment market turn earlier. After that, I explain how modular development can exploit this time window. Finally, I respond to the most common objections and offer a checklist readers can apply on their own.
Two Markets: What People Mean When They Say "The Market Is Bad"
The judgment that "the housing market is bad" is not wrong. The mistake is treating the state of the single-family market as the state of all real estate.
The real estate most people encounter day to day is single-family homes, townhouses, and condos. Open Redfin or Zillow and you see more and more listings and slower and slower sales. Agent friends will tell you buyers are extremely cautious right now, and many homes still don't sell after two or three price cuts. Concluding that "the housing market is bad" from all this is entirely reasonable.
But what I am building right now is not a single-family home. It is a 100-unit multifamily apartment building. On the surface both are "residential," but from the perspective of capital markets, they are two entirely different species.
Single-Family: Driven by Emotion, Traded Case by Case
Mechanism: Most single-family buyers are owner-occupant households. Whether they buy depends on the school district, the commute, the floor plan, the neighbors—even their first impression. Every transaction is a one-off, and the price is set by the emotions and expectations of a handful of buyers. When rates are high and the economy is uncertain, owner-occupant buyers collectively wait on the sidelines, and the market freezes just as everyone is seeing now.
Apartments: Driven by Numbers, Priced on Returns
Mechanism: Multifamily buyers are investors and institutions. They aren't buying a home they will live in; they are buying a "company" with an operating track record. As long as the numbers—rental income, vacancy, operating costs—work, a deal gets done.
What this means: The two markets bottom on completely different signals. Single-family has to wait for owner-occupants' confidence to return; apartments only need the numbers to become attractive again. That is why I previously wrote Single-Family Is Dead, but Multifamily Is Surging!—the two curves can move in opposite directions at the same time.
The Time Lag: Today's Deliveries Are Decisions Made Three Years Ago
The apartments you see being delivered today were not decided on today. They are the result of land purchases, design, and permits from three years ago.
The single most important concept for understanding the apartment market is the lag in the development cycle.
About Three Years from Decision to Delivery
A conventional apartment building takes roughly three years from buying land, designing, and applying for permits through construction and delivery. That means the number of apartments delivered today reflects developers' decisions from three years ago, and developers' decisions today won't show up in supply until three years from now.
The 2023 Rate Spike Hit the Pause Button
Argument: The collapse in apartment deliveries today is, at bottom, the aftermath of the rate spike three years ago.
Mechanism: Starting in 2023, the U.S. entered a high-rate era. Higher rates made construction loans expensive; banks grew increasingly cautious about development lending; and many projects simply didn't pencil once the numbers were run. So a large number of developers chose to sit it out and stopped breaking ground.
What this means: Developers' collective pause around 2023 is now playing out, today and for some time to come, as a gap in new supply.
The Supply Gap Will Last Another Two Years
Because developers collectively sat on their hands for the past three years, this supply gap will not improve for the next two years. Even if developers restart today, at conventional construction speeds new supply won't reach the market for several years.
When supply shrinks year after year while demand keeps growing, that mismatch is itself the apartment market's spring.
The conclusion of this section: the apartment market's "bad news" already happened over the past three to four years. The market has already gone through its crash and its clearing. What is most certain going forward is scarcity of new supply. For how Wall Street capital is positioning ahead of this mismatch, see In a Real Estate Winter, Why Is Wall Street Buying Apartment Buildings Like Crazy?.
Institutional Pricing Logic: Buying an Apartment Building Is Like Buying Starbucks Stock
Institutions are buying an asset-backed financial product. They look only at the numbers, leave emotion out of it, and close when the numbers work.
Why does the apartment market find its bottom more easily than the single-family market? The key is who the buyers are.
An Analogy: A Bubble Tea Shop vs. Starbucks
Suppose a bubble tea shop is up for sale today. You would scrutinize the surrounding retail area, the customer base, rent increases, and how convenient the location is—just as you would when buying a single-family home, weighing every pro and con and mixing in plenty of emotion.
But buying a multifamily building is like buying Starbucks stock. You look at the overall financial performance of Starbucks' 17,000 U.S. stores, focusing on metrics such as the P/E ratio, EPS, and cash flow. You don't care whether the rent at one store in downtown Seattle is too high or whether there are homeless people outside its door.
Mechanism: Rational Buyers Help Prices Find the Floor Faster
Mechanism: When the buyers are rational institutions, price adjustments happen faster and more completely. Once prices fall far enough that yields become attractive, capital comes in. By contrast, single-family sellers are often unwilling to accept price cuts while buyers wait, which drags out price discovery.
What this means: The apartment market acknowledged the drop in value earlier, so it also finished clearing earlier. That is what the title of my video meant—selling one house is hard, but selling 100 units is actually easy. A single-family home has to wait for a family willing to pay an emotional premium for it; a 100-unit apartment building only needs a financial model that pencils.
If you are considering moving from single-family into multifamily, read my reflection If I Could Do It Over, I Wouldn't Buy Single-Family Homes: Lessons After Ten Years and Eight Properties.
Speed Is Profit: How Modular Development Exploits the Two-Year Vacuum
Deliver fast during the two years when everyone else is sitting it out, then sell the building when they finally catch on and rush in—that time gap is the profit.
The analysis above shows that the next two years will be a vacuum in new supply. The question is: who can deliver apartments within that window?
Conventional Development Is Handmade; Modular Is Factory-Built
Conventional apartment buildings are essentially "handmade" on site, on a timeline of three years. Modular construction is mass-produced in a factory and then assembled on site, taking only one year. For why conventional construction is so inefficient, see Why Americans Still Build Homes the Most Primitive Way.
How a Time Gap Turns into Profit
Mechanism: One core variable in development profit is the supply-demand balance at the moment of delivery. A conventional developer that breaks ground today may deliver right into the supply peak that follows everyone restarting at once. A modular project started today delivers a year from now—landing squarely in the period of greatest scarcity.
Evidence (firsthand experience): During the coming two-year supply vacuum, while other developers are still on the sidelines, I can quickly deliver more than a thousand apartments while sustaining strong rents and low vacancy. By the time other developers catch on and pile back in, I will already have sold the completed buildings. That time gap is what gives me five times the profit margin of other developers.
What this means: In a supply cycle, speed is not just an efficiency issue—it is a question of how returns are structured. The same market call, executed at different speeds, can produce results that differ several-fold.
Counterarguments and Responses
A good call has to withstand the strongest objections, not the weakest.
Counterargument 1: "Rates are still high and developers' numbers still don't work. How can you say it's the bottom?"
Response: That is precisely why the supply gap exists—it is not a rebuttal. High rates caused developers to stop building; stopping building means less future supply; less supply pushes up rents and occupancy, and eventually makes the numbers work again. The case for a bottom does not rest on "rates have already come down" but on "the reduction in supply is already an established fact." Moreover, conventional development takes about three years while modular takes one, so a faster building method also carries lower holding costs in a high-rate environment.
Counterargument 2: "Is demand really growing? Won't a slowing economy and tech layoffs depress rental demand?"
Response: This is a risk to take seriously. There is genuine uncertainty on the demand side. But the apartment thesis rests on the relative change in supply and demand: even if demand growth slows, as long as new supply drops sharply because of the past three years of halted construction, the balance still tilts in landlords' favor. And when the economy is uncertain, households that had planned to buy often choose to keep renting, which to some extent actually supports rental demand.
Counterargument 3: "In two years everyone will get it and developers will come back. Won't apartments be oversupplied again?"
Response: That is possible—which is exactly why the time window matters so much. My strategy is not to hold forever and bet on a permanent upcycle; it is to deliver during the period of greatest scarcity and exit before other developers pile back in. Those who enter the market now get the meat; those who wait two years until the trend is obvious will only get the broth.
A Framework: How to Judge Whether a Property Type Has Bottomed
Don't try to predict whether home prices rise 5% or fall 5% next year. Watch where capital is moving and where supply and demand meet.
This method boils down to six questions readers can use to evaluate any property type:
- Who are the buyers in this market? Emotion-driven owner-occupant households, or numbers-driven institutions? The latter discover prices faster and bottom earlier.
- Have prices already adjusted? If a market has already gone through a round of declines and clearing, the remaining downside is limited.
- How long does it take from decision to delivery? The longer the development cycle, the more today's supply is the product of past decisions—and the easier future supply is to predict.
- What was the financing environment a few years ago? High rates and halted construction three years ago mean thin new supply today and for the next two years.
- Is demand growing, or at least not shrinking? A supply gap only translates into better rents and occupancy when paired with stable or growing demand.
- Can you move faster than everyone else? With the same call, whether you can deliver or get in within the window determines whether you get the meat or the broth.
For how build-to-rent and build-to-sell are likely to diverge over the next few years, see What Is BTR? Why Build-to-Rent Will Beat Build-to-Sell Over the Next Five Years.
Conclusion: See Who Will Hold the Assets Everyone Wants Three Years from Now
The average investor looks at whether one house sells today. I look at how many homes a city will have available to rent two years from now.
You care about today's mortgage rate; I care about how many developers have already given up on breaking ground. The difference between those two perspectives determines why, in the same "bad market," some people see only risk while others see a window.
To sum up the article's judgments:
- The market for individual homes really is bad right now, and that judgment is correct;
- But multifamily already went through its crash early and has begun to bottom and rebound;
- The supply gap created by high rates starting in 2023 will persist for the next two years and accelerate that rebound;
- The rational pricing of institutional buyers lets the apartment market clear earlier than single-family;
- Development speed determines who can turn the call into profit within the window.
What is genuinely interesting about real estate has never been predicting whether prices rise 5% or fall 5% next year. It is understanding where capital is moving, where supply and demand meet, and whether—three years from now, when everyone finally understands the trend—you hold the assets they want to buy. That is why I have chosen to build multifamily apartment buildings now.
