Real estate visionary Neal Bawa, CEO of Grocapitus and MultifamilyU, returns to the podcast. Neal always presents a compelling data-driven forecast that should capture every investor’s attention. Despite current market uncertainties, Bawa reveals a significant 5-million-unit housing shortage alongside plummeting inflation rates, positioning the US as the strongest performer among developed economies. Most notably, he predicts a dramatic surge in both single and multi-family rent growth during 2026-27, driven by high interest rates creating supply gaps. With homeownership projected to decrease to 60% within a decade, the rental market is poised for unprecedented strength. This perfect storm of undersupply, shifting demographics, and economic conditions suggests a golden opportunity for strategic real estate investors, particularly in the multi-family sector, with promising rent growth anticipated as early as late 2025.
Highlights/Topics:
- Hard data trumps market fear: why the numbers tell a different story
- US economy dominates globally as inflation drops from 6% to 2.4%
- Rising national wealth meets housing crisis: housing investment opportunity
- New construction wave promises better prices for entry-level housing market
- Five million unit shortage creates perfect storm for 2026-27 housing gap
- Massive rent increases predicted across all housing sectors in 2026-27
- Historic shift: Homeownership dropping to 60%, rental demand soars nationwide
- Real estate investments outperform during global inflationary cycles and market shifts
- 2025 forecast: Interest rates and delinquencies reshape investment landscape ahead
- Strategic opportunity: Significant rent growth predicted for late 2025 market
- Visit multifamilyu.com to dive deeper into these insights!
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Full Episode Transcript:
Toby: Hey, guys. Toby Mathis here. Today we’re going to dive into 2025 housing predictions with the Mad Scientist of Multifamily, Neal Bawa. Welcome back, Neal.
Neal: Well, thanks for having me back, Toby. It’s been so exciting to have these conversations. On my YouTube channel, these conversations that we have are always at the top. It’s great to be back.
Toby: Let me set the table. For those that don’t know, Neal manages over $600 million of multifamily real estate. I like people that actually don’t just talk. There are a lot of folks out there giving all sorts of bad information. They’re always scaring the hell out of people. I like just having folks that are data-driven, that tend to look at numbers, and actually live and die by this stuff. It gives them a unique perspective.
Neal, I’ll go back to a few years ago. We were talking about the market, and I just happened to say that we were right. But you had one video that we did together that went viral and just a lot of haters out there. I don’t know. Did you catch any flack off of saying that the market wasn’t going to crash?
Neal: Oh well, yeah. The same video went viral on our YouTube channel as well. You guys got more views than we did. But it was funny reading the comments. There were comments like, multifamily is going to crash. You don’t know what you’re talking about. There are going to be properties sold on the courthouse steps. This is going to be like 2008, but much worse because there’s $1.7 trillion in debt coming due.
We address that. Yes, there’s $1.7 trillion coming due, but 95% of it is for stabilized properties. It’s 5% of that that’s really for properties that are over-leveraged. Things like that.
It was super interesting to see that people will simply take data from a TikTok video or an Instagram post, and not even go and read the original article, which may by the way be written by somebody with an agenda. They don’t even do that, but they simply take this 30-, 60-, 90-second clip on the web, and start to basically spread it as if it’s true.
I spend at least 3–4 hours a week reading really boring documents, that are usually 50- or 100-page reports, that are written by people that are very cautious. They’re very careful. They’ll qualify every statement that they make. Even when they have an agenda, they’ll actually point out that they may have an agenda.
But the people that were watching this YouTube clip had gone and just done trivial stuff on the web, and on the basis of that, their opinion was, single family will crash because rates have gone up and multifamily will crash.
Well, here we are—I’ll give you the numbers if you want—two years later, there hasn’t been a single instance of a courthouse sale that I’m aware of—I don’t know if you’ve seen one—and this distress that people talk about, basically all that’s meant is some properties have been sold at prices below what they were purchased at. If that’s their definition of distress, well give me distress every day.
Toby: It’s definitely not crashes. That’s what we’re always cautioning is I always thought that there would be single digit growth, that it wasn’t going to be as great as it was. We just had massive growth between 2000, and right after COVID you just had this ridiculous high.
I think we used the example of an airplane going up to 35,000 feet and it’s leveling off and it might go down to 30,000 feet, but it’s certainly not plummeting. That’s the economy because it’s cruising along. Real estate’s no different than just about anything else.
I want to get into the data because you always come loaded with facts. I always say facts don’t care about our feelings, but they do tell us a story. People take them and they use them for their own agenda.
I tend to be looking at it from my standpoint, I’m a tax attorney. I like the deductions that are associated with real estate. They can give us some tax relief. They can keep us from having to pay tax on income. Plus it appreciates. You can borrow against it tax-free, it resets, and you have a step up in basis when you die.
I have all my reasons for liking it, but I like hearing your reasons because you’re an income guy, and you’re involved in this day-in and day-out. I’m sure that you’re come armed with some really good facts.
Neal: At the beginning of the year, we do this presentation on our website, multifamilyu.com. About 2000 people watch it. We basically present data that we’ve looked at. We looked at 2024.
When I look at 2024, the first nugget that comes to mind when I’m presenting data is this was an extraordinarily resilient year. We had ultra high interest rates that we had to deal with. Sure, they started coming down towards the end of the year, but for most of the year they were ultra high. Much higher than what we are used to.
The economy did phenomenally well. So just some numbers just to set the groundwork. The stock market went up 25%. Nvidia went up 171%. The US stock market went up 25% in a year where we had ultra high interest rates, and most people thought that would be a recession.
Obviously, we didn’t have anywhere close to a recession. We had 188,000 jobs created per month, which is basically a steady 82.5% growth year that any day we would take. If you told me that’s how many jobs we should get in 2025, I’d say, give me, give me, give me. That’s how good the year was despite ultra high interest rates.
Also, there’s a lot of hatred on the web about the US. For some reason we are in decline, we’re going down, we’re worse than everybody else. Just to share that, that 25% for the US stock market was the best performance amongst the G20 economies. The 20 economies in the world that are the biggest economies, the United States had by far the greatest performance.
And it just didn’t do that for the stock market. Look at currencies. Oh, the US Dollar is going to go down, the BRICS currency is going to rise, blah-blah-blah. Okay, here’s the actual numbers from 2024. Once again, this was a year where our interest rates were very high. We had a lot of downward pressure on our economy. We were supposed to go into a recession.
The US Dollar outperformed, by a very large margin, every one of those economies and currencies that are supposed to replace us. We went up 7.1%. The British Pound down 2%. The Mexican Peso down 2%. The Indian Rupee down 3%. The Brazilian Real down 21%. The Russian Ruble down 18%. The Korean Won down 12% against us. Against us.
There was no currency that I can think of that appreciated against the US Dollar in a year where we put intense downward pressure on our economy to lower inflation. We started the year with 6% inflation. We ended up at 2.6%. We won the war against inflation, and we did it simultaneously while beating every other developed country.
Toby: Do you think that one of the reasons why we’re not celebrating the victories is because we had such a contentious presidential election?
Neal: Absolutely.
Toby: I don’t remember ever seeing a candidate get forced out of running, and you had somebody who didn’t go through the primary system at the last minute. It just seemed…
Neal: Shameful, by the way.
Toby: I was going to say it seemed interesting and unusual. I’m trying to stay apolitical.
Neal: I know, but I think that even though sometimes I’ve leaned Democrat, in my mind nominating something like that smacks of kings and queens in a bygone era. But I’ll just get back to your point. Yes, absolutely.
You have one group saying the US economy is horrible because they want to get elected. Then you have one group saying the US economy is incredibly good, and they’re actually taking some of the benefits of the other group when they were in power four years ago. They’re benefiting from that.
As far as I’m concerned, I’m not in politics, and I have no intention of ever being in politics. If you hold a gun to my head, I won’t run for mayor of a city. I won’t run for mayor of a housing council, let alone a city. I don’t like politics because what it does is it messes with your head.
I like to look at numbers. The numbers say that three years ago, we had lots of reasons for the US to go down. Interest rates are going up. Then we had lots of reasons for the US to go down two years ago because a recession was coming. Then last year we had another reason, and then we had this election happening.
The point is, all of these three years, the United States economy has outperformed every major economy in the world. In fact, if you look at the corrected numbers from China (not the official numbers), we outperformed China, which has been the world’s engine of growth for three decades. We outperformed them. If you look at their real non-official numbers, they publish official numbers that are a bit too high.
Toby: So we know that the economy’s strong, but then again, there are also numbers that say, holy crap, homelessness went up 18% last year. We had a $1.8 trillion deficit. We’re spending money like drunken sailors, we’re printing money, bonds we’re trying to give them away, you have all these issues, you have homelessness going up, and then you’re juxtaposing that to one of the strongest economies that we’ve ever had.
You always say something’s going to give. Or hey, can we do better? And that’s what I’m going to throw to you right now. Here’s 2025. What do you think’s going to happen?
Neal: I’m going to say something that sounds completely heartless. I just want to tell people I feel for the homeless, I give to the homeless, a lot of my charity goes to them. But here’s what I’ll say. America’s actually getting richer. We have generational wealth that’s going to pass from Gen X to their descendants. It’s the greatest wealth transfer in history.
The truth is, the bottom 5% of America contributes less than 0.1% of our GDP. I feel for them. These people shouldn’t be on the streets. Let me tell you this. If instead of an 18% increase in homelessness, it was a 50% increase in homelessness, it still wouldn’t impact our GDP, because the very bottom tier has an infinitesimally small impact on our GDP. It just has a big impact on our hearts. It emotionally makes us feel bad about the country.
But when I look at the numbers, the actual contribution of these people to the GDP is extraordinarily small. So very heartless comment, but also true. You have to make logical decisions with logic. These are math-based decisions. And from a maths perspective, these people don’t have a significant impact on the US economy.
Toby: But I will say this. I always remember Milton Friedman. There was a video of him. When somebody was talking about affordable housing, I think it was back in the 70s, what the government was supposed to do about it? And he was looking at it going, it’s not about the government. It’s about what system will yield the best result for the greatest number of people.
I look at it and saying […], and right now that system seems a little broken because it’s not catering or it’s not allowing the business community to make a good case for taking care of that issue that’s obliged on society. We shouldn’t have this.
Regardless of somebody’s position—because I hear people say, oh, it’s mental illness, or they’re not working, or they’re not trying hard enough, or whatever, I get it, we’re a wealthy country, we shouldn’t have it—as real estate folks, you and me both know, they make it really difficult to cater to affordable housing. It’s really difficult.
Hopefully we get some of that red tape out and we get some of these prices under control, so that you can build and we get some innovations. Maybe it’s 3D printing, maybe it’s manufactured housing, maybe it’s doing pad splitting and shared housing, that we can focus and get profit by solving that issue, which capitalism seems to do the best job.
Neal: I agree capitalism does the best job, but I want to caution you, I wouldn’t hold my breath for any of these solutions. 3D printing, there’s a single company icon that is working in the US. They have one project in Austin. I dug deep and found out that the subsidies in that project were extraordinarily high.
Basically, they were saying that these homes are being printed for cheap, but they were tens of millions of dollars of subsidies. I think 3D printing is the great white hope of the future, but it’s not the great white hope of the next 5 years, not the next 10 years. Beyond that point, I think we can get some benefits there. It will take a long time for that technology to become widespread.
In the same way, the government does a terrible job of affordable housing. We used to have affordable housing in this country until about the 80s and then the 90s, and then Clinton basically killed it in 1999. Since then, we’ve had almost nothing. I don’t think that the government really has the money to do affordable housing.
Right now, the focus is on this massive fiscal deficit that we have. I don’t think that we’re going to print hundreds of billions of dollars for affordable housing. I think any work that has to be done has to be done by the private sector. We’re handcuffed there, but we’re still producing a lot of housing.
I’ll give you examples. Last year, the single family sector produced a million new homes in America. Now, they weren’t affordable, they were expensive, but here’s what happens. When you add a million to the supply, the portion at the bottom of that supply, that portion becomes cheaper or doesn’t become more expensive with inflation.
Maybe it didn’t get cheaper, but it again didn’t get more expensive. When you add a million in supply, you are doing something very important because guess what happened? If we didn’t add that million in supply in the last 12 months, home prices would’ve spiked further.
The single family development group is doing a very good job of adding a million homes to the supply. The multifamily group, which is a group I come from, added 600,000 units, which is one of the largest supplies in multifamily history. We did it once before in the 80s. But leading that aside, we added 600,000 units.
All of that was private enterprise. I can tell you maybe 1% of that money was subsidized. Ninety-nine percent of that was capitalism saying, we’ve got to figure out how to build homes or apartments at prices that people can pay.
And because 99% of this inventory, 1.6 million homes or apartments, got absorbed immediately, fundamentally, we were able to produce units at prices that people would pay, because otherwise we wouldn’t be able to sell them. We wouldn’t be able to rent them.
So it still works. It’s a functioning system, and it’s a trickle down effect. We build stuff for Class A people. Twenty years later, that building becomes a B. Forty years later, it becomes a C. Then 60 years later it becomes a D. That trickle-down effect is how housing works in America. It’s not perfect. I would love for there to be affordable housing, but we’re not doing as badly as people think we are.
Toby: No, I just think we’re not keeping up with the demand is all. We’re underbuilt, which is great for real estate, by the way.
Neal: It is. It’s phenomenal for real estate.
Toby: It’s the old supply and demand. There’s a limited supply. Yeah, we did 1.6 million units, but we needed to build that keeps up with about what we needed to do on an annual basis, which I always hear is between 1.7 and 1.8. We’re still not building fast enough. But there’s also, hey, we’re about 5 million units underbuilt.
Neal: We are. Roughly five million, that includes single family and multifamily. So it’s a combination of those two. Multifamily, actually, for the first time in a decade, built the right number of units. We actually absorbed slightly less units than we built this year, so our vacancy ticked up a little bit.
The first year we actually built what we were supposed to be building. But here’s the bad news. Multifamily takes 2½ years to build. I already know how many units are going to be built for the next 2½ years. If you haven’t started them yet, you’re not going to finish them in the next 2½ years.
Well, because of high interest rates, the multifamily permits have dropped massively. In certain markets like San Antonio, they’ve dropped by 78%. In other markets, they’ve dropped as little as 30%. But even the 30% drop in permits, it’s going to hurt future supply.
But imagine a market like San Antonio which is down 78% from peak, and a market like Philadelphia down 80% from peak. Well, we’re pretty much guaranteed to have ridiculous rent growth in those markets in two years because there’s just not going to be any supply. Nobody’s building at this point in time because interest rates are very high.
The challenge with real estate is when we spike up interest rates, it does make things hard for us in the rent growth goes down and it’s harder for us to buy, to build, profits get hurt. But ironically, high interest rates then create a supply gap in following years. So 2025, 2026, and 2027 are guaranteed.
This is not a prediction because once you pull a multifamily permit, you occupy that building for about 30 months. It takes 30 months until we come up with some magical wand to make multifamily faster. A single family takes about 13–14 months, so it’s a little bit quicker.
I can simply look at last quarter’s permits and tell you how many units are going to be delivered roughly 30 months from now. I know it’s going to be undersupplied. There is a guarantee of undersupply in 2027 and in the second half of 2026. That’s a crystal ball that actually works.
I hate the word crystal ball, Toby, because people will hold me to something two years later. I’m saying, if you want to hold me to one thing here, multifamily is going to be undersupplied because we are not starting enough new buildings, because the mathematics of interest rates is not working at this point of time.
And guess what happens? The market evens out because rent growth spikes. When rent spikes, we are able to get more value for the property, so we’re able to pay more in interest. The market will even out over the next 2–3 years.
But for the moment, there is no doubt in my mind that for single family landlords, and you have a lot of them on your podcast, expect very sharp rent growth. Depending on your market, starting from early 2026 or mid-2026, you should see sharp increases in rents for all multi-families and all single families.
Toby: And what happens if interest rates actually start to drop?
Neal: They all effect, so this is fascinating. When interest rates drop, there’s some positive absorption on the single family side because the mortgage drops. You can afford a bigger mortgage. There are some people who are renters that are going to go over onto the other side. It helps rebalance things a little bit.
Multifamily, by the way, just had the apartment industry Q4 of 2024—we’re recording this early 2025—was the single greatest quarter of absorption for multifamily in modern history since we’ve been tracking data in the 50s. We built a very large number of units in Q4, so the supply was massive. A hundred fifty-five thousand units were delivered, but we absorbed 230,000.
You know what that means? We absorbed every single unit that we built in Q4 and 75,000 more. Where did those 75,000 come from? Well, multifamily nationwide is not at 100% occupancy. It was at 94% occupancy. By the end of the quarter, we were at 95% occupancy. So some of those empty units got filled up.
So we’re coming off, in my mind, the most astonishing absorption quarter in our history. What would happen, in answer to your question, is if interest rates go down, let’s say they go down by 100 basis points. The Fed is saying they’re going to go down by half a percent, which is 50 basis points. Let’s assume that they go down by 100 basis points.
Well, at 100 basis points, all that happens is that of the 18 million families that we’ve marooned to rentership, out of those 18 million families, roughly 2 million now can afford to buy a home and get on the other side of this renter versus buyer phenomenon that we have going on.
So home ownership in the United States is falling. So 66, 65, 64, a certain percentage of Americans were homeowners. My prediction is this. Within 10 years, we’re going to get to less than 60% of America owning their homes.
Home ownership is such a fundamental thing in America that this is a terrible piece of news for the country, but it’s incredible for apartment owners because we are seeing absorption rates that are truly mind-blowing, that I would never, never, never expect to see. But it’s happening because interest rates are so ridiculously high, that we’ve marooned a good portion of Middle America to be forever renters. This has happened since COVID, and I’ll give you those numbers.
Toby: But I will say this. I don’t necessarily think that’s a horrible thing. I like home ownership, too, but I like home ownership to a certain extent. Home ownership in 2005, 2006, and 2007 wasn’t such a good thing. These were underwater, they wouldn’t rent for what they were buying them for. In other words, they were buying on comp, not on cap. Ultimately, the market will tell you what a house is worth based on what it’ll produce.
Rent going up is a great thing from a real estate standpoint as far as the thing’s worth it. But I still look at it saying, you just have to change your thinking (not you, but in general a person), if they’re not able to afford to buy a house. Then they need to be attacking by living below their means and investing the difference.
You could be investing, it could be going into multifamily, it could be doing syndications, if they can qualify as a credit investor, more than likely it’ll be REITs or the stock market or something where they’re able to allow that to grow, so that eventually, yeah, they will be able to afford a home.
But it’s not just going to be spending everything that they have bringing in. This saving needs to occur. Savings rate in America, I think, was around 5% last year. I’d love to see double that.
Neal: I think our savings rate is a worry. You mentioned it. Our federal deficit is a worry. But I look at the federal deficit from a world perspective. When I look at the federal deficit of 20 other economies starting from Canada to the UK to China to India—well, maybe not India is not so bad, but China for sure, Japan is incredibly bad—the only thing that keeps our federal deficit in control and keeps people buying our bonds is that everyone else is unbelievably worse than us.
For the moment, and this is a bad thing to say, we still are the best-looking pig in the pigsty. But if we keep spending the way we are, we will have that privilege taken away from us.
Toby: Well, it seems like they’re attacking and government efficiency will be the Department of Government.
Neal: I’m very hopeful. People are like, there’s no way Elon Musk can cut $2 trillion. Okay, how about this? He fails and cuts $250 billion, I’ll take $250 billion.
Toby: We were $700 billion in the first quarter of 2025 because the government’s fiscal year end is actually September. The last quarter of 2024 is like the first quarter of 2025, and they were $700 billion behind. We were $1.8 trillion behind for 2024. So 2025 is getting off on the wrong foot.
If they can correct that, then maybe we’re only going to be a trillion behind, which just means mass still inflation. That’s all that is. It’s a big old tax, but also they’re going to print money or they’re going to sell bonds. So you have two choices, but it’s inflationary, period.
Neal: It definitely is, and that’s why I’m in real estate. I have seen no evidence that any country in the world, not just the United States, any country in the world, and there are many countries with much bigger deficits as percentage of GDP than us, has actually found a solution for money printing. No one has.
I know that there’s a big challenge coming for us, but economists have only come up with two concepts of what would happen in 10 or 15 or 20 years for the world economy to adjust. All of those scenarios are actually pretty darn good for real estate. Hyperinflation, for example, is phenomenally good for holders of real estate. You can go from making 2x in five years to making 10x in five years in hyperinflation.
A perfect example is Argentina. Argentina’s economy is currently going through high inflation. So is Turkey, so is Nigeria, so is Pakistan, so is Sri Lanka. If you look at all five of these countries—this is all stuff that’s happened in the last 12 months—everyone that was sitting on real estate has turned into instant mega millionaires. Because that real estate all of a sudden, in their currency’s terms, is worth 3–4 times as much as it was just two or three years ago.
I’m not saying a hyperinflation will happen to us next year or the year after, but it’s nice that real estate is a hedge against whenever that happens because it’s inevitable at some point in the future.
Toby: I think, again, Milton Friedman. Not to beat the dead horse, but the facts of the matter is that when you have these inflationary cycles, it devalues the debt that you’re incurring now, and it’s not a bad thing for the government. They may want it to occur, which is why you’re always fighting. They’re like, spend, spend, spend.
It’s the old build a ship and then go sink it in the ocean, but we generate a GDP. You’re like, wait a second, that’s just insanity. Well, to a certain extent it is. There’s a mess.
Neal: It’s not as insane as it is for governments. Actually for individuals, it’s the worst possible thing to do to build a ship and sink in the ocean. But when governments do it, it actually permanently increases the size of the economy and the economies are inflexible. Once there’s a certain size, they don’t want to go back down. They want to continue growing. They have a tendency to grow.
Nations that have done inflationary spending in the last 20 or 30 years, ironically, are much further ahead in GDP than ones that were extraordinarily conservative.
Toby: So let’s bring this back to real estate and your predictions for 2025. It sounds like you’re bullish on real estate in 2025–2026.
Neal: I am with some caution. In my mind, interest rates are still too high. What I’m a little bit nervous about is the direction of interest rates. If you had me on the podcast six months ago, Toby, I’d say I was pretty sure that 2025 would be 100 basis points or 1% decline in interest rates.
Now, I can’t say that. I think the Fed changed its mind in December and switched the dot plot to half a percent cut in interest rates. Maybe we’ll get one more cut, but I don’t see us getting to 100 basis points now.
What’s really happening is that there’s still bad stuff happening on the real estate side that’s been kicked down the road. Like on the multifamily side, delinquencies are picking up in the last six months because the can was getting kicked down the road and kicked down the road with people believing, okay, when the rate cuts come, they’ll come in a flood and we’ll be able to refinance all of our debt. Well, that hasn’t happened.
I think that what slows down multifamily valuations, at least not rent. I think I’m very, very, very, very bullish on rent growth across the board in the United States and in southeast markets in 2026, but across the board in 2025.
Bottom line is that I’m not so bullish on valuations of multifamily because I still think that there’s a huge amount of potential delinquency that can turn into not necessarily fire sales, but sales where there’s pressure on prices and it doesn’t allow prices to increase.
On the single family side, it’s similar. Remember, multifamily prices over the last 2½ years have declined by between 20% and 25%, and people use different measures. Twenty to 25%. Single family prices in the last three years have gone up. They’ve gone up about 15%.
So single family hasn’t reacted to interest rates the way it used to in previous cycles. If you look at the last nine times that the Fed raised rates, either single family prices went down or they were flat. Well this time, they went up. They didn’t react to interest rates, and because they didn’t react to interest rates, they are hitting a ceiling.
When I’m looking very carefully at single family data all across the US, the first thing that’s happening is there was this timeframe which lasted for about two years, where less and less people were willing to sell because they were locked into their low interest rates. I’m locked-in at 1.75% for my home.
I can’t move because my mortgage is going to double if I move, maybe even triple. So I can’t move. That lock-in effect can only be held for so long before people have to move for jobs or other changes. So now we’re seeing more inventory coming on the single family side.
I’m not really bullish about single family home prices increasing for 2025. I think we might get a small increase. I’ll pick a number that Zillow had, I think it was 2.3%. I think that that’s where we are going to be. We’re going to stay barely with inflation for 2025.
The real benefit is going to come from accelerating rent growth in the second half of the year, because the inventory of apartments was dragging down rent for all the single family guys.
A lot of single family people, for some reason, think that they don’t compete with apartments. Of course you do. There are Class A apartments that are charging more in rent than single family. Those people have choices.
There is competition between single family rents and multi-family rents, because multi-family rents didn’t rise at all in the last 12 months; they were flat. That made it very hard for single family landlords to raise rents. That problem goes away in 2025, especially in the second half. So if you are a single family landlord and you are not raising rents by at least 5%, 6%, 7% in the second half, you are out of touch with the market.
Toby: Then your prediction is that in the second half of the year, rents are going to escalate.
Neal: Very strongly.
Toby: Strongly. So get with your property manager, make sure that you’re actually addressing that. That you’re looking at the expiration date of your rent or of your leases and that you’re addressing that, because you believe it’s going to be very pro-landlord to continue to escalate it.
I’m assuming that then you also think that real wages might be going up too, that we might be seeing people with the ability to afford that, or do you think that affordability is going to continue to be a significant issue?
Neal: It absolutely will be a significant issue because I don’t expect that wages will go up in track with rents. Actually, what’s happened is rents have become more affordable in the United States in the last 2 years, because overall rents in the US are up about 2%. Overall wages are up about 7.5% in the last 2 years. So affordability has improved. It’s just a little bit. I don’t want to make a big deal of it, but it’s improved a little bit.
Next year, I expect rents to be higher than inflation. If inflation’s at 2½ percent, rents might be at 4%. We’re going to make it a little less affordable, but it’s not going to be a huge jump. I do expect payrolls to remain strong. For the moment, December numbers just came in, 256,000 jobs.
The economy is creating phenomenal numbers of jobs at such high rates. These interest rates, just listen to what the Fed said. They had a meeting the day before yesterday. They said interest rates are higher than they should be, but we still want to keep pressure on the economy because we’re seeing the job growth being absolutely phenomenal.
Some of it has to do with AI, but a lot of it has to do with simply the fact that the US economy has actually out beyond what anyone else thought. A lot of that is because much, much, much worse things are going outside the US.
Again, I hate getting political, but I think this is worth stating. The challenges that the US is seeing, this wave of anti-capitalism, this wave of basically saying capitalism is bad, is exponentially worse in other countries in the G20. It’s exponentially worse in Europe, it’s exponentially worse in the UK and in Canada.
Money has actually ironically started to flow in, because even with our anti-capitalism, we’re still way better than what other countries are doing. There’s completely crazy near socialist stuff going on in other countries, which makes our socialism look very moderate, actually, so we’re benefiting from that.
Toby: And it seems like we’re addressing it too. That does seem a way towards…
Neal: I hope so. The funny thing is when you grow up in another country and you look at what socialism truly means, you come here and you laugh at what we think it means. It’s absurd.
Non-capitalist policies are a guarantee to slow down your economy. They’re a guarantee to slow down your wages. I haven’t seen anybody be an exception to that. I’m struggling to name one country that has socialist policies and still grows at 3% a year. I honestly don’t think that there’s an example of any such country.
Toby: Well, it’s interesting because you have an administration that says they’re going to cut a lot of the red tape, embrace the true capitalism, and allow it to take off. It’ll be interesting to see if it does. Sounds like […] in 2025, which is great to hear.
Neal: I’m actually more bullish on 2026 and I’ll explain why. The supply trough, the point at which supply is lowest, is all of 2026 and the first half of 2027. That 18 month period, we should see very tremendous rent increases as long as the economy continues to hold up. If we’re producing 200,000 jobs a month, we should see phenomenal renter household formation, single family, multifamily.
Single family guys, look. You guys actually benefit a little bit ahead of us. If we’re going to see good times in multifamily, you’re going to see them six months before us.
Toby: We’re pushing on it right now. We’re trying to do our part, because I’m a single family. You know that. I do have multi-family, but I love the little houses.
Neal: And by the way, for everyone watching, Toby’s done better than I have in the last two years because multi-family prices went down, but everything that Toby owned, none of his rents went down. So they were either flat or up. But the value of his assets went upwards. The value of my assets actually went downwards. The single family guys outperformed the multi-family guys in the last 2½ years.
Toby: But I’ll say this. Insurance, it’s going up. I just had a multi-family unit. I have a 16-plex. We saw a 50% increase in insurance. Property taxes, governments need their money there. Those aren’t going down.
Neal: And that puts pressure on rents because as a landlord, when I’m paying so much more on insurance, I am really pushing rents. It’s not that I can push rents by myself. I can’t. I’m just one player in the market.
But imagine if every apartment complex in the United States had rents going up, had insurance going up double digits, every single one of those landlords is having a conversation with their property manager saying, I can’t have you have the same rents. You need to raise them. There’s an upward push on rents because the insurance costs in the US have completely gone out of control.
Toby: Hey Neal, I think we should draw to a close. I want to just say, I really appreciate you coming on. Where should I send people if they want to learn more about your numbers madness? I love the fact that Neal is a numbers guy because I am too. There are folks out there that do it intuitively, and here’s Neal spending time in the scientific method of here’s what the numbers say. Where can they get a hold of you bud?
Neal: multifamilyu.com. This is our one-stop site. Even though the name has the word multifamily in it, we do 12 webinars a year, and many of them have nothing to do with multifamily. We’ll do one for single family, one for multifamily, one for Airbnb, industrial stealth storage.
We’ll have webinars for things like artificial intelligence or how climate change affects insurance rates, stuff like that. So these are webinars. About 14,000 people signed up last year to attend our webinars. All of that at multifamilyu.com.
If you’re looking to invest with us, that’s still the right place to go to because usually during a presentation we’ll spend 30 seconds on any upcoming projects.
Toby: Perfect. Well, I appreciate you coming on and sharing. Then guys, put your comments below. What’s your prediction for 2025? Like and subscribe, and we’ll see you back here.
