Jay Parsons 2026 Rental Housing Forecast: Rents, Supply & Investor Opportunities

I am very excited to bring up the stage here in just a minute, Jay Parsons. He is a rental housing economist. He's a partner at Waymaker. I love guys that are in the business and really making informed decisions that impact their own capital and other people's capital. He's an economics advisor at JPI. Jay is a leading rental housing economist and consultant advising multifamily and single-family investors, developers, lenders, and regulators. Again, The point of this whole conference was to bring people on stage to you today that are advising some of the largest groups, investors in the country, and give it to you for free so that you can make better informed decisions in 2026. That's exactly what Jay does. Formerly chief economist at RealPage. Okay. He hosts the Rent Roll podcast and has been cited in The Wall Street Journal, Bloomberg, and The Economist. In 2003, he was named one of the Globe Street's influencers in multifamily real estate. Hey, before I bring him on, he's got to have some love in the chat. So bring, you know, help me bring him on stage by giving just a ton of excitement to Jay Parsons. Come on, let me see this chat blow up here.

Let's go.

Let's get this chat hot. All right, Jay, how are we?

I'm doing great. How about yourself?

It's great to have you on. Excited to hear from you today.

Well, thank you for the warm introduction. I feel all fired up now. Let's get into it. Well, first of all, thank you all so much for inviting me to participate. Honored to follow my longtime friend John Chang and hopefully add a little bit to the conversation. So I'll give you a little bit of my view of what's happening in the world and what that means for rental housing. And then we'll have some fun with some Q&A. So, you know, one thing I always like to do, whether it's a webinar or in person or my podcast, is I'm a nerd for rental housing. So I want to give you guys a little trivia question. And, uh, and this is really just a shout into your own homes and offices, wherever you're listening. Uh, but just think about this, okay? Obviously, a lot of topics, a lot of focus right now on single-family rentals. And so I just want to ask you, between 2016 and 2023, uh, which is a period we saw a lot of growth in home sales and whatnot, uh, how many single-family rental homes do you think we, uh, added or subtracted over that period of time? And really, we can take this back a full decade. Do we add 1.5 million? Do we add 500,000? Are we flat? Do we lose 1.5 million? And just think about what you might vote for. I've asked this question to a lot of different people, including those who are in the business of knowing, and most people just don't know. It's actually D. We have lost 1.5 million homes in the single-family rental market over that period of time, even going back a full decade, even though it's reversed a little bit due to inability of people to buy right now. We're still— we've lost more than a million single-family houses over the last 10-plus years as individual homebuyers have outmuscled investors for market share. So very counter to the headlines that you're seeing. This is census data, by the way. It's not just Jay Parsons. Harvard Joint Center for Housing Studies pointed this out. Johns Burns Research and Consulting. Redfin wrote about this recently. So certainly wish that more of our policymakers on both sides of the aisle would be aware of those facts as well. So there you go. Now you know. All right. So, uh, as we get into the economic, uh, conversation, I want to start talking about inflation. Uh, inflation's obviously been a big topic these last few years, and still today some debates about what inflation is or isn't. And I want to make the case that inflation has actually been lower than what headlines have been reporting for a while. In fact, you know, if you look at some alternative measures of inflation, including one that's done by Penn State, they have an economist there, everything called the Alternative Inflation Index. They're showing it close to zero. Okay. Well, I want to show you part of the reason why. I'm going to go through this pretty quickly. It'll be a little wonky here, but bear with me because it is important. Okay. So the blue is the headline CPI, Consumer Price Index. That's how we measure inflation, right? The orange is, I'm going to take, we're taking out shelter. Shelter is housing, of course. Okay. And what you'll see is that if you take out, and I'll tell you why in a moment, because obviously shelter's real, housing costs are real. I'm not saying, I'm not saying you just ignore it. What I'm saying is that measure is not really good. Okay. So we take out the shelter component here. You look at the orange line, we've been hovering around 1.5 to 2.5% for the last 2.5 years. It's been average of 1.8%. Now, why is that important? Well, the Fed set a target inflation rate of about 2%, and we've actually, again, been in that range for the last 2.5 years when we take out the lagged shelter methodology. So let's talk about shelter really quick. Again, this has been important these last few years. We've not filed this. You may have heard a little bit about it. I'm going to give you a deep dive in about 5 minutes about what's really going on here. Okay. So, first of all, here are the components of inflation. Shelter is 36% of the CPI. Okay. Shelter is housing. Okay. So, it's the biggest single component of CPI. It's a big piece of it, right? So, you take that out, it really does move the needle. It also really moves the needle on the headline numbers. Now, what's in shelter? There's 4 different things. But really two that matter. There's owner's equivalent rent. Most people don't understand what that actually is. I'll get into that in a second. And there's rent of primary residence. Rent is what we talk about with apartments and other rentals. Owner's equivalent rent is sort of a made-up concept that's designed to try to measure the equivalent of what owners, what the cost of owning a house. Now, it's important to understand that home prices, mortgage rates, actual cost of owning, they are not part of the CPI. Okay. Owner's equivalent rent and cents by married presence come from two sources. Okay. There's two different surveys. And again, I know I'm nerding out on you, but this, you'll be able to impress your friends with this kind of useless information here. Okay. So some people think this owner's equivalent rent is a survey of homeowners asking them, hey, what would you hypothetically pay to rent out your house or charge to rent out your house? Obviously, nobody really knows the real answer to that because we have no basis of comparison. But a lot of people think that the owner's equivalent rent number is based on that survey. It's not. That question that we often hear about, everybody mocks, it is a dumb question. I agree with people who mock it, but it's not really what impacts inflation. It's a weighting metric. Okay? Now, I would argue it's not even useful for weighting, but that doesn't really matter. Okay? What you really need to know is that when we look at owner's equivalent rent, and rent to primary residence, it's really the same survey. The actual change in that number comes from a survey of renters, okay? It's a survey of renters. So renter costs and rents are really what drive assumptions around homeowner costs as the US measures inflation. And the only real difference they note here between owner's equivalent rent and rent to primary residence is that the owner's version removes the value that any utilities might have been included in the rent and that also uses a higher share of single-family home rentals versus apartments in that sample. But it's the same basic dataset. Okay? So, that's important to understand. Now, what is it? So, real quickly, and again, I know I'm nerding out on you guys, but bear with me. I promise you, this is important to understand. It's even a topic that some of the Fed governors have been debating because it raises the question around what inflation really is. Okay? Now, when you guys talk about rents, and you see headlines talking about rents, we're talking about typically asking rents, okay? This is the data that CoStar, RealPage, Yardi is talking about, this data that John Chang was just talking about. It's asking rents, some people call it effective rents, which is just the asking rent minus the concession. That's what we're talking about, okay? Now, when you get data from those kind of sources, they're updated either daily or monthly. The big data shops, they have data sizes close to or above 10 million. They're generally trying to track more professionally managed market rate housing. And they're generally getting new leases. This is the market rent of what it would cost to rent a new apartment today, or I'm sorry, to get a new lease today in an apartment or single-family rental. So, the reality though is, again, it's just the new leases. So, this would reflect the CPI rent is the only metric that doesn't in the CPI that doesn't reflect the real-time price today. So, in other words, if you're trying to capture the price of a car or groceries or whatever, what you see in CPI generally reflects what you're going to see in your cities. It's not the case with this. So, asking rents is just a piece of that, but that's the front— that's what, again, what people actually see, but we don't see that reflected in the CPI. The CPI is based on a rent survey that's done every— well, it's every month of 7,000 renters. They The same renters are only surveyed once every 6 months. The vast majority of these leases, what they call continuing leases, or we would call the in-place rent roll. And so because of that, if you get surveyed today as a renter, your rent changes tomorrow, they're not going to capture that for another 6 months. And also too, so the impact of these new leases is going to take a long time to show up. It's not even just renewals, just the fact that many of these leases just just didn't change at all. I would argue that's not a— that's kind of a disingenuous way of measuring costs because it doesn't reflect the real-time nature of what's actually changing. Okay. So here's what CPI rent is showing and why it's so important. It's been coming down for a long time. Um, and so now we're at 2.9%, but it took a long time to get there. And so now we're back below the pre-COVID average, but it's taken a long time to come off that mountain given that lag methodology. Now, of course, what we see in the industry is very different. Before I get into that, and one of the questions I get is, well, Jay, what about when we see rents accelerate? Well, for those of you in the apartment space today, I'm going to take a brief pivot to what's happening right now. Okay? This is showing you the month-over-month change these last few years. And so, what's going to happen if and when rents accelerate? Okay? Well, what this chart is showing you is the gray line, that's what was the average monthly increase in each month of the year. And I'm gonna start— since we just finished January, we're going from February to January. The orange and green, that's what happened these last 2 years in '23 and '24. And you can see we had much more subdued rent growth than normal, a lot of rent cuts. That's what drove down the rent numbers I just showed you. Well, okay, well, look at what's happening in the last 12 months, which is in blue. And you can see, well, the numbers were especially bad in the summer and fall to pull those down, numbers down even more. What we saw, as John alluded to, was that supply's dropping off in these last few months. And again, it's the winter, it's not especially an important period, doesn't really matter as much as the spring, that's what really matters. But we're seeing these numbers start to pick up again. In fact, the last 3 months have looked more like the pre-COVID averages, a little bit of return to normal seasonality. Now, again, let's see what happens in the spring before we get too excited. But the point I want to make there is this is going to take a long time, given what I just showed you, for that to translate to actual CPI growth. Even if we get a big pop this year, somehow, it's going to take quite a bit of time to show up in CPI, probably more than a year, as some people assume, because it took more than a year for the rent cuts to translate to slowing rent growth in the CPI as well. All right. Now, let's put this together a little bit. Okay. So here's the real-time version of what's happening with rents. Okay. That's going to be apartments in navy blue. I've got build-to-rent in gold. I've got single-family rentals in gray. I'm going to compare that to wage growth, which is in the red. And I think this has been a sneaky good story for everybody, for consumers and really for investors and operators as well, which is that affordability is improving. Wages have been outpacing rents for the last 3+ years. That just widens the demand funnel for who can afford a rental. And it really reverses the narrative these past few years when prior in the obviously '21, '22 period, when rents were growing faster than wages. So we've erased that hump. Rent-to-income ratios for market-rate apartments are back around 22%, 22.5%. I'm based in Texas. I'm showing you some of these numbers on the right here. We have some of these Texas markets are 20%, 23% across the, across the, across the area. And that's pretty much true for most of the country. We're seeing high teens to mid-20% for new lease signers, an improving story pretty much everywhere as wages has outpaced rents. And even, by the way, as job growth has slowed down, we're still seeing good wage growth, especially in that apartment age demographic. And that's good, probably predominantly people who— well, we've seen some challenges of folks coming out of college getting a job. That's a real challenge. But at the same time, you know, if you're somebody who's got a little bit of experience, but are not yet too expensive, you're in that kind of mid to late 20s to your 30s, you know, that group has— especially those with degrees, that group is still seeing good wage growth. Alright, so one more thing real quickly on affordability. This is what I feel very, very passionate about. And And I'm gonna show you why. Affordability is greatly misunderstood. And I think this is an important factor that every investor should understand. I wish every policymaker and reporter understood this as well. What I'm showing you here is rent-to-income ratios by income level in the US. This is census data analyzed by my friend Ryan Davis at Whitten Advisors. So nationally, we see this number as, oh, more than half Americans are rent burdened. That's obviously a problem. The median renter spends 31% of income on rent. They shouldn't— anything above 30% is considered rent burdened. That number is true, but also it's very misleading, as the other two things in this chart are going to show you. The reality is affordability is extremely bifurcated in America. If you're a household, which could be with roommates, making more than $50,000 a year, you're spending 22% of your income on rent. Which is like the numbers I just showed you earlier. Anybody in the professionally managed apartment world, in SFR world, that's typically what we see is low to mid-20% range of income spent on rent. If you have Class C properties in more challenged areas economically, you may be in the high 20s. But generally speaking, we're right in that low to mid-20% range. That's what we see, right? The real challenge in America are those making less than $50,000 who on average spend more than 50% of income on rent. And that number is really skewed by the nearly 20 or the nearly a quarter of all apartment renters who make less than $20,000. Now, if you make less than $20,000, there's really no realistic level of rent you can afford comfortably that can also still cover the operating costs of that rental unit. So that's a real challenge. And unfortunately, I think a lot of the conversation about affordability are such kind of the shotgun approach when the reality is we have a very— the problem is right in front of us. It's not a, it's not an industry, it's not a housing-wide problem. It's concentrated at the lower income levels. That's what we need to address through increased supply and other solutions to address that part of the market. Okay. Now, on the flip side, if you're addressing renters making more than $50,000, which is generally more the professionally managed marketplace, that group is spending a lower share of income on rent. And so the reason that's important is affordability is much in that market. And I would argue more of a tailwind for those renters. Okay. All right. So let's talk more. Let's go back to inflation for a minute, tying this all back together as it relates to affordability. And I got a little typo there. It's not unemployment. This is— I'm going to show unemployment in a moment. This is CPI expectations. This comes from the Wall Street Journal's survey of economists. And what they're showing here is their expectations for inflation, which is slight acceleration this year from 2.65% to 2.8%. And then it goes back down and their expectations were basically in the mid-2s for the next few years. And so, you know, you could take forecasts with a grain of salt, we all do, but I think that's an important consideration is that no one's really expecting, and there's a lot of conversation today about impact of tariffs and other things, a little bit of pickup, but no one's expecting anything like what we just came out of. Now, what's going on? Well, as John talked about, a big reason for rent deceleration and, and disinflation has been supply. So in 2024, we delivered the most units in 50-plus years— or I'm sorry, in about almost 40-plus years, really almost 50 years. In 2025, that number came down, but it was still a lot. We completed more than 400,000 units. That was still— if you take out '24 and '23, it would have been the highest supply year since the mid-1980s. So it's still a lot. I know a lot of investors a year ago say, hey, look at this big drop-off in supply. And it was dropping. But that number in 2025 was still high. That's why the market was still challenged. This year is when it really drops off, the lowest supplied year in about 10 years. And then in '27, it's going to drop off more materially. And again, I mentioned this early, take forecasts with a grain of salt, but supply is the easiest thing to forecast. It just starts being pushed forward. And it's a much more challenging environment today to get anything new out of the ground. But that's what's pushed rents down. And again, as John noted too, I'll go through this quickly since John touched on this, This is showing a relationship between supply and rents. Rents fell where supply hit in big numbers. So x-axis across, that's supply growth last year, y-axis rents. That's on the— I'm sorry, that's on the up and down, y-axis is rent growth. And you can see that it's a clean relationship between when— where supply is going, rents are falling, where there's no supply, rents are increasing. Okay, so it's all about supply. Everybody wants to make it something else. It's about demand shortages, about affordability, Nothing correlates as well as supply. It's all about supply. And if you're in these higher-supplied markets, I think this chart's actually encouraging because what it shows you is when supply is less, we should see more rent growth because the markets with little supply are seeing rent growth. And oh, by the way, these markets with all the supply also are seeing the most demand. And so as supply drops off, assuming the economy's in decent shape, these markets should be able to see better rent growth. Not like what we saw in '21, '22, these once-in-a-generation numbers. I don't think that's going to happen. And by the way, I think it's a bad scenario because it creates all other kind of problems we just saw. But I do think you can see certainly a pickup in rents. Now, here's what's also interesting. I know there's been a lot of conversation about older assets. And one of the things that John noted was that a lot of investors right now are nervous about these older kind of Class C assets. And that's especially true in higher supply markets. And here's why. The Class C rents have been hit harder than even Class A and Class B in specifically high supply markets. If you look at places like New York, Chicago, San Francisco, Class C rents are still increasing at a pretty good rate because there's no supply. But what's happened in these markets and across the Sunbelt especially, and we've seen this quite a bit these last couple of years, is as new compartments deliver, people have to come from somewhere. And so, the higher-income renters from the B+, A- properties, they're moving up. And then the B properties are cutting rents, they're pulling higher-income renters out of Class C, maybe folks who've been doing well economically the past couple of years, they're spending relatively low income, low share of income on rent. There's a better option available and maybe a newer property, more amenitized, better location. And they made that jump. And then what happens in Class C is they're having to cut rents more in order to pull in people who previously may not have qualified at all for market-rate housing and reduce the affordability challenge that tends to be concentrated there. Now, that said, obviously what's happening here is we're seeing a widening out of cap rates. Where previous cycle, Class A to Class C are pretty tight. They're widening back out. Class A seems to be kind of finding its groove again. We're seeing, you know, high 4s, low 5s. Class C, a little more uncertainty in these older deals. Now, that said, eventually, you know, you're going to see opportunities there. But, you know, my biggest advice was just to be really strategic in trying to find the right deals in the right locations. I think locations matter a lot, the submarkets and neighborhoods. I think now more than ever, it's really important. Especially if you're Class C in a great submarket, access to jobs and good schools and all that kind of stuff and retail restaurants, that's a different outlook than maybe something that's in a more commoditized area. We have everything built in the '70s and '80s. It's a more economically challenged submarket. That's the type of thing I really look at for this next cycle for those of you who are looking at that market is really being mindful of those things, being mindful of the health of the rent roll. I think in the previous cycle, there were too many generous assumptions about turning over rent rolls, things like that, value adds. So that's the kind of stuff I would think about. So don't interpret this as like, hey, you can't be in that market anymore. Again, I think it's more about being very strategic about what's happening in that market, because eventually, you know, you could see opportunities there. Alright, and then on that point, though, whether it's A, B, C, supply is dropping off. I want to hammer this home. So all these, these are the highest supply markets in the country: Austin, Charlotte, Raleigh, Nashville, Salt Lake, Jacksonville, Phoenix, Denver, San Antonio, Orlando, Dallas, Tampa, Fort Worth, Atlanta. What I'm showing here is the supply growth rates in each of these markets prior to COVID in blue, the peak in this cycle in green, last year in black, next year in gray, and then another black in 2027. In all of these places, that supply drop is significant. It's not just going way below the peak. In a lot of these places, including a lot of places like Texas and the Carolinas and Florida, We're seeing supply numbers are going to be less, not just below the peak, but less than we saw in those years leading up to COVID as well. Now, obviously, we have to lease up the current wave of supply, but once that happens, you really can make a bull case for multifamily, assuming the job market is in decent shape, etc. But that drop-off is certainly substantial that we're going to be seeing. All right. Now, this is a little bit of wonky view, but I want to build on the topic that John was talking about here, which is, What does absorption look like in this next cycle? And so bear with me a little bit here. I know I'm showing you a lot of nerdy stuff, but hopefully I can boil this down for you in a way that's actionable or understandable. Okay. So what I've done here is I've looked at— this is the historic absorption versus supply rate. And so, you know, the absorption rate minus the supply rate. And what I've done for the next few years, I'll take it. Okay. What's the forecasted supply? And then let's take whatever we have forecasted. And then I'm going to take instead of a forecasted absorption number, okay, based on a lot of things we don't— we may or may not happen. Let's forecast a revert. Let's not forecast. I'm sorry. Let's just apply a reversion to the mean absorption rate. And I've given you two scenarios here. One is let's revert back to the 2015-2019 absorption rate. So I'm taking out the COVID noise and all that kind of stuff. Let's look at that or the full 2010s decade. In both scenarios, what you see is a reversion to the mean creates a favorable outcome because the supply drop-off is so low. And so, in my view, and I could be wrong on this, but my thinking is this, is that if that supply drop-off is indeed as significant as forecasted, it doesn't take that much absorption to see more absorption than supply, which allows vacancy to improve and then allows for potentially a rent rebound as well. Right? And so again, even if absorption comes down, and by the way, I think it will just because there's less available to absorb. There's a correlation between supply and absorption. You can only absorb what's available. So even if we see less absorption, our reversion to the mean, that's a big drop-off on paper, on a chart. It's gonna look like a big drop-off, but it's not actually bad news as long as supply is dropping off even more than absorption. And that's what this chart's gonna— next one's gonna show you. This is the annualized absorption numbers. Absorption is coming down, but I've been telling people, I wrote about this on LinkedIn, but I think I put it on my, my Outlook for 2026. Don't panic about declining absorption as long as absorption is dropping off at a slower pace than supply. If, if, if again, if that happens, that means vacancy is still improving and that's really what matters. Again, you can only absorb what's available. So absorption is going to come down, but that doesn't mean that the market is slowing down. In fact, what you could actually see is that leasing velocity at a property can improve even if there's less absorption because there's also less supply. What's happening in the last couple of years is that all this new supply has gobbled up a lot of that demand out there. As that fizzles out, you could see better leasing velocity even with the macro absorption numbers being lower. Again, we'll see what plays out. We still need to see a decent economy, et cetera. But again, the bottom line I really want to share with you is, Don't think declining absorption alone, absent all other factors, that alone is not necessarily a negative single signal as long as vacancy is improving. All right, where's absorption going? It's going to the place that usually goes, all the Sunbelt. We see, you know, Dallas, Phoenix, Atlanta, Charlotte, Austin, Orlando, Tampa, San Antonio, Houston. But also, you know, we see good strength and demand in places across the Mid-Atlantic, the Northeast, New York, New Jersey, Philly. The Midwest has been strong, Chicago, Columbus. On the West Coast, the Bay Area has been really strong. So there's different spots across the country. We're seeing good demand. I had to share this. This is everyone's favorite least scientific demand metric. It's the U-Haul rankings based on where we're getting trucks, where we drop them off. And, you know, you take this with a grain of salt, but I think there's, you know, it's directionally true probably that you see, you know, still Dallas, Houston, Austin on top, Charlotte, Phoenix, Nashville, Charleston, Raleigh, Atlanta. And interestingly, the number 4 Texas market was not San Antonio. But it was actually Brownsville, McAllen near the border. So again, you take this with a grain of salt, but it's always a fun thing to look at. A little more on demand. So again, I know there's a lot of concern about demand and whatnot, but the macro trend is actually pretty favorable. This is the— this is for the last few years. We can see this is from census data analyzed by John Burns. It shows we added more than 1 million renters in the last year. A lot of that, of course, is because people aren't leaving as much to buy houses. And so, that doesn't create a net new renter on itself. People don't just come out of thin air to become a homebuyer in most cases. But what it means is fewer people leave to become homebuyers. And as young adults come into the rental market, the net number does increase. That's really what's happened. And so, I would expect that we'll continue to see growth in the renter pool. And because single-family rentals have been declining in stock, a lot of that growth has really come into multifamily. All right. Speaking of homeownership, here's one of the topics I think is really misunderstood is that I mentioned earlier, obviously, people are leaving to buy houses, but I want to make the point, this is not a new phenomenon. This is not even just a high-rate phenomenon. Look at the orange line. This is the homeownership rate among people in their 30s. And what it shows you is that rate's been dropping since 1970 or 1980, whatever year that is. It's been 40-plus years that number's been coming down. It dropped significantly again after the Great Financial Crisis. And so, the reality is people are just waiting longer to get married, have kids, buy a house, and that's elongating the renter stage of life. So, even as homeownership comes back, we start— I mean, at some point, everything's cyclical, people will be buying houses again. That is not necessarily a negative signal for apartments and SFR. In fact, historically, if you look this up, some of the best years for rental housing have been years when homes were really selling like hotcakes because in that environment, you're you're losing more renters to home purchase, but you backfill units faster and usually at a higher rate because of the downstream effect of home buying and that has on household formation. But anyway, I think this is more of a structural shift. And real quickly, we're seeing declining turnover rates that really aren't related— this trend goes back long before the spike in mortgage rates. This is the 7 major REITs, the same thing if you look at just kind of broader private sector apartments. Turnover rates have been declining for 10 years. So again, this is not a new phenomenon. Same thing with SFR. This is for the SFR rates. They've been declining for the last 10 years in terms of turnover. So again, not a new phenomenon. I think structurally turnover just appears to be lower now in the next cycle than it was in the past cycle. So our assumptions there need to be lower on turnover probably as well. And mostly every asset's different, but I think in most cases, that's probably the case. And for a lot of reasons, including I think there's just better management, better properties, better living experiences. Better technology, a lot of things that made that living experience better than it was in decades past. All right. Here's the key thing I want to look at as I'm thinking about the future in this next couple of years. Here's something I really want to watch closely. That's consumer sentiment. It's down. Today's consumer sentiment is lower than it was in 2009, which is hard to believe because unemployment was 10% in 2009. It's 4.7% today. So it doesn't really make sense, but it does reflect the fact people are nervous. And so I think one thing to really watch for this next year, especially, is what happens with this metric and how do people feel. Because when we're nervous, human nature is to do nothing, is to wait, is to hold out. And, and that ultimately, it's a freezing effect. So people are unlikely to move or less likely if they're nervous, they're more likely to stay with parents, more likely to double up with friends, less likely to go move, to sign a new lease, or even to buy a house. Businesses are less likely to hire. You know, those are things we're kind of seeing a little bit of right now. If that persists, we can worry ourselves into a recession. I hope that doesn't happen. On the other side of this, you know, we could see what happened in 2022, which is for a while was inflation peaked. People got really nervous and consumer confidence dropped off. And then we kind of looked around and everyone realized, okay, I'm still doing okay, still got a job, my wages are going up, I got to keep going about my life. I got to go sign that lease. I got to get out of mom and dad's place. It's finally time to go buy that house. It's finally time to start hiring again. We can't keep not stressing our current staff for so long. We have to start hiring. So I think that's the upside scenario here. And for what it's worth, economists surveyed by the Wall Street Journal, they see decreasing odds for a recession. This is their recession probability index, and you can see that number has come down since peaking in 2022 when inflation peaked. That number's gradually trended down into the low 20s in terms of the probability of a recession. Now, ultimately, a recession is like a thief in the night. You don't know when they're coming. So you take this with a grain of salt as well. Again, worth noting that people who look at this stuff every day see decreasing odds of that happening. And then unemployment as well. Unemployment has creeped up a little bit, but historically, even at 4.4%, well, that's above the sub-4 numbers we saw at the low points of the cycle in terms of unemployment. That's still low historically. I mean, that's well below the long-term average. I believe the long-term average is closer to 5% or 5%+ if I remember correctly. No, quote me on that, but it's definitely lower than that long-term norm. But look at the forecast as well. And most expectations here are going to be in that kind of low to mid 4% range over these next few years. Now, for the sake of time, I want to cover one more thing, and that's related to the demand side and slowing population growth. I want to make a real— I think this is an important point. So the population is aging. Okay. However, it does not age equally across the country. So what this is showing you is Oxford Economics data on the population of 20s and 30-somethings. And nationally, you know, as we age up, a lot of people make the point of, hey, like apartment demographics aren't as favorable as they were in years past. And that's true. However, that's not true equally across the board. What I show you in the blue are 9 states in the Sunbelt and the Mountain areas, North Carolina, South Carolina, Georgia, Tennessee, Florida, Texas, Arizona, Colorado, Utah. These are states that are younger populations that are still expected to see growth in that young adult demographic that's so important for apartments. Why is that? Well, you have younger populations, you have more kids, they're going to age up, a lot of them will stay in place, as well as the fact that young adults have been migrating into these markets and likely will continue to migrate into those markets. The rest of the country, a lot of states will be contracting young adults. Now, of course, that doesn't mean you can't do well with apartments in other states. Don't misunderstand what I'm saying, but it does become much more strategic where it's not about the macro tailwind, it's more about the right location. Maybe there's obsolescence issues in certain areas. You can always find opportunity even in a no-growth area, but in terms of that demand driver, that tailwind, it's much more favorable for those 9 states. And the last thing I'll show you before I turn it back over to the guys and we'll get into some Q&A, is this. If you live in the Sunbelt, inevitably, you've been hearing about declining affordability. And, you know, I'm in Dallas, I hear this all the time. It's like, hey, it's not as affordable as it used to be. And so that's true, like, things have gotten more expensive, especially home prices, to a lesser degree rents, but especially home prices. But you know what, it's important to remember that, relatively speaking, these markets are still affordable. And when I say relative, I mean, like, If compared to where people are coming from, in this case, looking at the average rent for a major coastal MSA, New York, Boston, D.C., LA, San Francisco, Seattle, it's still 50% to 60% cheaper to rent in most of these MSAs other than South Florida than it is to live in one of those major coastal MSAs. And so that remains a tailwind for people moving into these markets is that relative affordability. It's also a factor for companies relocating. As well. So again, I still think there's a bull case for the Sunbelt. Supply is coming back down. The absorption is going to come down too, but as long as the economy is in good shape, I think supply will come down faster than absorption. And I think these markets are in good shape. Elsewhere, I think the Midwest is still attractive. I think there's some good story there. There's more capital, it's more liquid. And I think we're also seeing a good story in the right coastal markets and investing in particularly lesser and more politically stable suburban areas of these coastal MSAs, I think we've also seen as an increasingly attractive strategy in some of those spots. So, it's not just the Sunbelt, but I think there's other opportunities elsewhere. All right. With that, I will turn it back over to you guys in the studio.

Jay, that was great. Also, you know, yeah, I was hoping you'd give the Midwest a little bit of a shout out there. Great place to live. And Missouri just actually passed the no capital state gains tax in the state. So, really interesting. But Bob, I'll pass it over to you to—

No, I like the Midwest. I glossed over this, but Midwest is doing great. And we're seeing a lot of capital come into places like Kansas City, as well as, you know, Columbus, Indianapolis, etc. So, nothing but good things to say about that for the most part.

Yeah. Well, as usual, a fire hose of information. It just totally feeds my inner nerd. I feel very, very satisfied right now.

So, thank you for that. Good. Yeah.

You know, it's very interesting, you know, looking at— I love your— the details of the markets you're looking at. You know, we've actually seen— and we're actually based in Kansas City and it's been such a boring market since forever. And all of a sudden we're like the top market for growth and capital. We're seeing cap rates hitting 4s right now for decent properties in our metro area. I'm going, what is happening? Are we— becoming San Francisco or Dallas or something. I don't know, but there's a lot of appeal here because it hasn't been oversupplied. There's strong, there's decent job growth and migration. And so, we really like these markets, but I love how you're pointing out that, you know, traditionally the Sunbelt markets and the high-supplied markets are the high-growth markets. And you're actually making the point here, the opportunity is probably right now to enter those markets while the pricing is favorable, right? More favorable to get in those markets while the supply is evaporating, right? The new supply is evaporating. So, talk about just the pros and cons. I mean, where are you putting your money these days and which markets do you think are gonna be more favorable? And we could argue for, you know, both of these two. Markets, right?

Yeah. I mean, first and foremost, one thing I love about real estate, and you guys know this really well, is I think you can be successful pretty much anywhere with the right strategy, right? The right deal.

That's so true.

So, I always try to bear that in mind, keep that in mind. But no, I think a few things. I think the market today is much harder for people with a short-term strategy. So, I think regardless of where you are, I think having a mid and longer-term view is important. I think that one of the things we're seeing, I'll just tell you one of the things I'm hearing from investors is that there's some view that you're taking— you mentioned like 4 caps in a place like Kansas City. There's a view that if the market recovers as expected, then while those current spreads might not look attractive, it's a basis play and that a year from now, you're going to regret not buying at that price. Now, That's obviously deal-specific. I'm not trying to say it's always true, but I think that is one consideration out there is that there's a lot of dry powder that still has multifamily. It's obviously slowed in terms of sales these last couple of years, but it wasn't like an office situation, people exiting the market. It was more just like kind of waited out. And so, that money is going to come back at some point. And so, I think the Sunbelt markets will always be attractive. I think the Midwest is going to be attractive. Investors are increasingly drawn to these lower regulatory risk states. And one of the things the Midwest really offers is it kind of gives you a little bit of both worlds where you have the reduced supply risk of the coastal markets, but you have the reduced regulatory risks of the Sunbelt. And so I think if you can find areas where, even if it's not like a big population, but that doesn't necessarily matter. Some of these markets, as you guys know, in the Midwest, you have some submarkets in Kansas City that have barely added any supply in the last few decades. And maybe near some good economic anchors. And so, those are the type of spots that I think can be attractive. And obviously, if you know your market, you know what those locations might be. Yeah.

I mean, that's such a great point. I mean, we're seeing properties coming on the market with incredible cash flow metrics where we really haven't seen that in years. We're super strong cash flows, especially in the you know, the Bs and C properties. And, you know, you know, so you, you, you kind of made a bear case for the Cs, but I would almost flip, flip that around, you know, as the supply shortens, are we going to see, you know, that, that whole process reversing where the Cs have been pressured by the Bs, right. Lowering, you know, lowering their prices and, and holy cow, are we seeing cash flows out of the Bs and Cs right now. So I would, I would flip it around and make a, make a bull case as a time to buy. In those markets. I don't know, fight with me.

Yeah, I know. I'm not— I don't disagree that. I just think that— I will say, I think some people in the past cycle— one thing, again, I'm based in Dallas. One of the things we saw was people who are out of the area who said, hey, I want to be in Dallas, and they bought the worst deals in the worst locations at the worst times. And, and, uh, and so, uh, so it's kind of the caution kind of comes through that of like, I think, I think Class C's can be a great investment as long as I would make sure you believe in the location, make sure that, you know, the rent roll and CapEx issues are either priced into the deal or aren't there ideally, and then you can work through those things. So, and I think it's maybe just kind of common sense, just disciplined approach, but I do think you're right. I think there's a case for Class C. I would just be careful about not repeating the mistakes of the prior cycle and really making sure you're buying good real estate at the right price.

Great, great points. I mean, when is a C a C? I mean, you know, the age is the primary factor, but we're seeing super well-located, you know, older properties that there is no infill location, there's nothing being built. And, you know, it's just a little bit older and that's well maintained and cash flowing like a cow and no one's interested. They've got no buyer interest. I'm like, you know, just makes sense to me, you know. So, great point.

Well, and also, I would say too, I think a lot of the perception right now is this not that profile. I mean, unfortunately, a lot of the Class C space has not been well maintained and they have rent roll issues. And so, if you're finding deals that have been well maintained and have a healthy rent roll, then I think that stuff's going to be coming back a lot faster than the other stuff that were out there.

Yeah. I think so. Great point. You know, you know, it's, you know, you're looking at these rental markets, you've, you've, you didn't talk much about it, but, but holy cow, I mean, what happened in New York? I mean, the rents have gone, have gone berserk in New York. And of course, then now there's the, the massive, the massive backlash with the Maldonado election, you know, is a full-on socialist. And, you know, we're seeing people are voting their pain, right? And I can't see how rent control, especially in the blue states, doesn't really start to go mainstream. And once it starts to— the political ideas always have momentum, right? And once someone does this, I just wouldn't be surprised to see more socialists being elected and more rent controls. People think it's going to solve the problem. In fact, it's created the problem and it's going to continue to make it worse. But that's not what politicians get elected on. What's your view of the rent control kind of momentum and the political, I mean, you know, the political dimension here?

Yeah, it's a great topic and certainly it's an issue that was, you know, kind of barely on the radar prior to COVID and now is front and center. You know, funnily enough, I just, for my podcast, The Rent Roll, I just recorded an episode with a guy who's a former state assembly member in New York and sat next to now Mayor Momdani, in the New York legislature, and now is the head of the New York Apartment Association. And so he's kind of joking, they're like frenemies now. And, uh, but he was a, you know, he's, he was a Democrat, still is, but has a very different view on this topic, especially, um, you know, now in the world that he has and seeing the impact that rent controls had in New York, where they have, in the case of New York, 50,000+ units sitting empty because it's not economically viable to bring those units up to code and rent them back out because it would take you, you know, you wouldn't get, you wouldn't recoup your cash to that until maybe your great-great-grandchild is running the property. So, it's just, it's not, it's unfortunately that there's a really, you're really seeing the real-time consequence of rent control in particularly vacancy control in New York. But yeah, it's not just New York. I mean, we're seeing, we see it, we saw famously in St. Paul, Minnesota. We've seen in Montgomery County, Maryland, which is ironically one of the most affluent counties in the nation. Seattle just elected another Democratic socialist, and they've got some pretty aggressive proposals out there. Massachusetts will likely have a ballot referendum to install a pretty draconian version of rent control. And so, these are real risks. And I think rent control and other factors, they've gone from kind of a fine print of an investment packet to now it's front and center. And that's why I said I think it's really driving more capital of all types, whether it's institutional or sub-institutional, into these markets where you don't have as much risk of in one election cycle, the rules could change. That could really upend an investment. I tell people all the time, supply risk is generally predictable and temporary. Regulatory risk is permanent and oftentimes unpredictable. And so, I think it makes market selection and municipality selection very important. Yeah.

And I mean, it makes those those regions kind of uninvestable. I mean, really. And so, which is only going to hurt, hurt, you know, hurt the problem, right? Supply, supply growth is, is going to be zero there, really. I mean, I don't know.

Yeah, I'll give you a real example. I mentioned Montgomery County, Maryland. This is— so they had issued something like, I'm afraid, the exact number, like 8,000, 9,000 permits in the 12 months prior to passing rent control. After that, it was 56 total permits. It just evaporated. Same thing happened in St. Paul. So it's— it is real. And unfortunately, these policies end up backfiring on renters in the long run.

Yeah. Meanwhile, there's a lot of good markets, right, to invest in.

But let me ask a question while we're on policy. I've seen some of your content. It seems like you've been unfavorable— correct me if I'm wrong— to Trump's policies on banning institutions from buying family homes. What is the downstream impact of this for single-family homeowners but also single-family investors that are watching today?

Man, I'll just tell you, like, I, I, it's a very frustrating topic because the narrative just, just runs so far from reality. And I even talk to people in the industry in SFR and multifamily, even they don't fully understand the facts. They're like, well, you know, this and this is like, no, like, look at the data, like, look at what's actually happening. First, I mean, I could go on this for days. Like, I wish people would just take time to actually look at it. If anybody's interested, I got a blog on my website at jparsons.com, and it has the 11 myths about institutional investors in single-family rental housing. It's deeply— I got all kinds of links citing academic studies and data sources and other kind of things. Like, it's just getting the facts out there. But I think the reality is we have a housing challenge. We have housing challenges in America. But, you know, this idea that, you know, that, you know, the new slogan is that, you know, corporations don't live in houses, people do. Well, guess what? Renters are people too. And the vast majority of single-family renters can't qualify for a mortgage. So even if home prices come down a little bit, that's not going to help people who can't qualify for a mortgage or can't pay the additional $1,000 a month in the cost it takes to be a homeowner versus a renter of single-family rentals, and nor does help them come up with a down payment. And so it does not address the root challenge. And in fact, it just exacerbates the challenges for people who are already facing reduced inventory in terms of reducing a family rentals over the last decade and will likely only make housing costs worse for the people that we're apparently supposedly trying to help.

That's a great point. If we can find that link, stick it in the, stick it in the chat. That's, that's, that's fantastic information.

We got it, Jay. Yeah, we'll post it.

Okay.

You know, you know, back, back to the single family space. I mean, are we ever gonna see, uh, supply come back? Uh, it just seems like it just nothing pencils and, and we just are not seeing the permits and with construction labor where it's going and costs, you know, are we going to see— are we ever going to see the single-family market come, come back and come down? I mean, it's good for people that own homes, right? Because I don't see prices being able to come down. But what are your thoughts?

Yeah, no, I think, I think if there's anything good that could come out of this, it is to maybe figure out how do we build more homes. And by the way, like I tell people all the time, I'm an all of the above guy. Some people say we need more affordable housing, we need more single-family homes. I'm like, yeah, but we need everything. We need manufactured housing, we need single-family housing, we need apartments, we need affordable housing, everything. We need all of it. And so if there's one good thing that comes out of this and, you know, the homebuilders are already trying to, you know, trying to come up with some proposals on this, you know, I do think we need to figure out and kind of come together to figure out how do we get starter home production back? And that those deals have not penciled out, as you noted, the margins are thin. But there's been some talk about, hey, are there incentives that we can create, tax credits, or whatever it may be that make that more worthwhile for homebuilders to build? How do we reform city zoning to allow for smaller lots and smaller square footage? That's a big hurdle for development. If you have to have 3,500 square feet and a huge lot, Guess what? You're building homes that are going to be $500,000, $600,000. So, those are things I think we have to address. And I really do hope that this whole executive order thing becomes an impetus to solve that problem.

Jay, as we wrap up here and speaking to kind of the individual investor, I know you're an individual investor in this. You're a principal at Waymaker as well and doing a lot of multifamily development. We mentioned earlier there's a deal trading here in Kansas City. I don't know if it's Class B, Class A, but it's trading in like a 4 cap, low 4s here in Kansas City. Interest rates have really, you know, I mean, interest rates are higher than that now. I mean, where do you think is the opportunity for the multifamily investor today or the housing investor if we're starting to see cap rates already come down like that in a market like Kansas City? And we've really not seen interest rate— you know, interest rates seem to be pretty sticky on where they're at right now. What are your thoughts on that as folks are wondering when is the right time to enter back into kind of housing from an investment standpoint?

Yeah, that's such a great question. And I would, you know, and I'm going to give you— I'm going to start by giving you the typical economist answer, then I'll make it more nuanced. I mean, obviously, it depends, right? You know, I think it really depends on the deal. I think there's value in being disciplined. But I would look at, you know, where can you find opportunities? I will say, like, what everybody wants right now who has cash or has equity, I should say, is they're trying to find newer vintage deals, like John mentioned, 1990s plus, and they want to find them not just in a good market, but they want to find them in good submarkets. I do think that creates opportunity. And so, if you can find deals that work— and let me just back up a little bit. I think it'd be hard for— there's more capital than supply for those types of deals. And so, the groups that are winning those deals are going to be some of the biggest names, the most well-capitalized names in the country. So, I think you want to look at, okay, where's their opportunity? Well, I think that could be in markets that don't have as much of that capital. I think it could be maybe buying higher quality deals in less desirable locations and trying to find like the best deal and maybe not the best spot, you know, in some cases. And maybe there's some— you're kind of feeding into a, you know, the demand that is there is going to have a flight to quality. Quality. Maybe it's finding that Class C deal that's in a great submarket where you're catering to the workforce housing for an area that has a lot of, you know, affluence. There's a demand for, you know, retail workers and restaurant workers and teachers and nurses, etc., but can't afford the Class A stuff. I think if you can find those types of deals, then I think, you know, if they pencil out, like, I don't think you have to wait for that. But I would just figure out, hey, what's your strategy? What's your buy box? And then aggressively look and try to stay true to that strategy. And when those opportunities are there, jump on them, but not try to get ahead of your skis on the wrong deals. Yeah.

Buying anything at a 4 cap is not an easy thing. And a couple of really important takeaways, and I want investors to hear this. You know, you know, saying it's not a short-term market right now. I really like that. I think we've seen a lot of people trying to do the value-add, quick flip kind of thing. I think those days are over. And I think we should take a long-term view when the long, the long-term trends are in place and they're quite predictable, as you said, you know, like the demographic changes, the growth changes, migration changes. So I think it's placing capital for the longer term right now, you know, a 5-year horizon or a 10-year horizon. I think makes a lot of sense. And I really love what you pointed out. I mean, very strong case you made for these, these high-growth, high-supply markets that are, that are really right now is the time to place capital, right? That these, these, these things have been— they're getting creamed right now, right? Because they have, you know, high vacancy rates and other things. But that supply is going to disappear, right? That oversupply is going to disappear. Those concessions are going to be burned, burned through. Meanwhile, the growth is going to remain. And, you know, maybe not as, not as high because of the soft job market, but again, 5 years out, I think it's a pretty safe bet. So that, so really looking at the high-growth, high-supply markets may make a lot of sense, as in addition to high cash flow markets like, like the Midwest that we're seeing.

So yeah, you guys find the right deal.

Yeah.

Jay, this was fabulous. Again, so honored that you would join us and, and we have access to you today. Uh, thank you so much, guys. I know if you don't follow Jay, he's a a wealth of knowledge on LinkedIn. I think you're also on X, uh, so encourage everyone to follow Jay there. Uh, Jay, what a privilege. Thanks so much. Any final comments, uh, you know, for the retail investor as we wrap up, uh, this topic?

No, but thank you so much for having me. And yeah, you can find me online, uh, jayparsons.com, LinkedIn, X, wherever, the Rent Roll Podcast. So if you didn't get— probably most of you probably got enough of me by now, but if not, uh, love to stay in touch through any of those channels.

Thanks so much, Jay.

Thanks, guys.