The calendar year 2025 is nearing its end, presenting a landscape filled with challenges and opportunities in the housing market. This year has been characterized by an unusual mix of factors, including an oversupply of construction, stagnant rent growth, and stable home prices, which have all contributed to a sluggish pace in residential real estate. In contrast, the commercial sector has experienced even greater difficulties, with transactions almost coming to a halt.
However, as we look toward the future, there appears to be a silver lining for long-term investors.
Real estate expert Brian Burke shares insights on which sectors investors should prioritize as the new year approaches. He suggests that the current climate may resemble the early 1990s, a period during which strategic asset accumulation could yield significant future gains. Although rental growth has slowed, those with patience during this phase may find themselves rewarded over the next five to ten years.
Table of Contents:
Reflecting on the state of the market
Understanding the current housing market requires a reflection on the events of 2025. According to Burke, the year has been marked by chaos and uncertainty, which has paradoxically created opportunities for investors. The turmoil in both residential and commercial sectors has set the stage for potential future growth. Despite widespread discomfort during this tumultuous time, there are signs indicating a possible recovery on the horizon.
Residential vs. commercial market conditions
In analyzing the residential market, Burke notes that initial expectations of robust performance have not materialized. This sluggishness is attributed to various regional factors, including a significant inventory imbalance in some areas. For example, in Northern California, an excess of homes on the market is exacerbated by owners with favorable mortgage rates who are reluctant to sell. Concurrently, first-time buyers are facing challenges due to high down payment requirements and increasing interest rates.
The commercial sector has fared even worse. The first half of 2025 saw minimal activity, with only a slight uptick in the latter months. Burke cautions that this increase may not signify a genuine recovery. The financing climate continues to impact both sectors, as buyers struggle to navigate the complexities of interest rates and inventory challenges.
Identifying areas of opportunity
Despite the overall market conditions, Burke identifies a few promising areas. One notably successful sector has been senior housing, where Burke’s firm shifted focus to assisted living, skilled nursing, and memory care facilities earlier in the year. This sector has demonstrated resilience and growth potential amid broader market challenges. Additionally, data centers have emerged as a strong investment area, although Burke notes that these opportunities are often dominated by major industry players, limiting accessibility for individual investors.
Looking ahead to 2026
As 2026 approaches, Burke observes signs of improved deal flow, particularly in the residential sector. Interest rates have slightly decreased, and some sellers are adjusting their price expectations to align with current market realities. This shift is creating potential openings for buyers who are willing to act strategically. Burke emphasizes the importance of patience, as the true benefits of investing during this period may not be evident until several years later.
In the commercial sector, however, the anticipated wave of distressed properties has yet to fully materialize. Lenders, who may themselves be in precarious positions, are delaying foreclosures and extending loan terms to protect their balance sheets. Burke suggests that this delay could lead to a prolonged recovery period rather than an immediate influx of opportunities. Investors must brace themselves for a long game as the market adjusts.
Strategizing for future investments
For prospective investors, Burke advocates a cautious approach. He recommends focusing on smaller multifamily properties, particularly for casual investors who may not be seeking immediate returns. While the outlook for large multifamily investments may currently seem bleak, smaller properties could offer a more accessible entry point for those willing to invest time and effort into value-add strategies.
As the market evolves, it is crucial for investors to adapt their strategies accordingly. Although the current climate may not yield immediate rewards, those with a long-term vision may find potential for appreciation. The key will be patience and strategic planning as the housing market continues to navigate these challenging times.
