Why the Headlines Are Missing the Real Story — And Where Smart Capital Is Moving
The Contrarian Case for Houston Multifamily
If you've been following real estate headlines, you've seen the doom-and-gloom: "Houston Vacancy Hits Record High." "Rent Growth Goes Negative." "Oversupply Pressures Continue."
The headlines aren't wrong. But they're incomplete.
At Rockfish Capital, we believe the most compelling investment opportunities often emerge when market sentiment diverges from underlying fundamentals. And right now, Houston's multifamily market presents exactly that kind of asymmetry, particularly for disciplined investors targeting the right asset class in the right submarkets.
Here's what the data actually shows.
By The Numbers: Q4 2025
| Metric | Value | Trend |
|---|---|---|
| Metro Vacancy Rate | 12.4% | ⬆ Record High |
| Asking Rent | $1,400/unit | ⬇ -0.9% YoY |
| Cap Rate | 6.6% | ⬌ Stabilizing |
| Price Per Unit | ~$150,000 | ⬌ Stable |
| Units Under Construction | 13,000 | ⬇ 8-Year Low |
| Q4 Transaction Volume | $81.5M | ⬆ 4-Year High |
Source: Matthews Real Estate Investment Services, CoStar Group
The Bifurcation No One Is Talking About
Houston's multifamily market isn't monolithic—it's split into two distinctly different stories.
Urban Core (Inside Loop 610)
- Average rents exceed $2,000/month
- Vacancy hovering near 5%
- 2026 deliveries will be just 10% of 2025 totals
Suburban Growth Corridors (West/Northwest Houston)
- Capturing the majority of positive net absorption
- Far West Houston posted 310 basis point occupancy gains year-over-year
- Active but concentrated development in Katy, Sugar Land-Stafford, and the Highway 249 corridor
The metro-wide 12.4% vacancy figure masks this divergence. Investors who understand where demand is actually flowing and where supply is actually landing, can position themselves accordingly.
Class C Dominates: Follow the Transaction Data
Perhaps the most telling indicator of where sophisticated capital is moving: over 80% of all Q4 2025 trades involved Class C properties.
This isn't distressed selling. It's strategic repositioning.
Private capital continues to lead acquisitions, but institutional participation is returning to historical norms, a signal that the smart money sees value in workforce housing at current pricing levels.
Average pricing has stabilized around $150,000 per unit, well below replacement cost in most submarkets. Cap rates averaging 6.6% reflect a normalized risk environment as financing conditions improve.
Source: Matthews Real Estate Investment Services
The Supply Story: Relief Is Coming
This may be the most important chart to understand:
| Period | Units Delivered | Context |
|---|---|---|
| 2023-2025 | 62,000+ | Historic supply wave |
| 2026 (Projected) | ~3,000 | Lowest since 2013 |
The construction pipeline has collapsed to approximately 13,000 units, the smallest active pipeline since 2017. New starts have dried up as developers face financing headwinds and uncertain rent growth.
The math is straightforward: Houston absorbed roughly 10,850 units in H1 2025 against 7,071 deliveries. When 2026 completions fall to a trickle, the current vacancy overhang will burn off rapidly.
For investors acquiring today, this means executing your value-add business plan during the supply hangover, and positioning for exit or refinance into a supply-starved market in 2027-2028.
Source: CoStar Group, Marcus & Millichap
Hot Topic: Tax Season Game-Changer
100% Bonus Depreciation Is Back—Permanently
The One Big Beautiful Bill Act (OBBBA), signed into law July 4, 2025, has fundamentally reshaped the tax landscape for real estate investors.
Key Provisions:
- 100% Bonus Depreciation Restored, permanently, for MACRS property with recovery periods of 20 years or less (acquired after January 19, 2025)
- Section 179 Limits Increased from $1M to $2.5M maximum deduction
- Qualified Opportunity Zone Improvements with enhanced benefits
What This Means in Practice: A cost segregation study on a $33M apartment acquisition could now yield first-year depreciation deductions exceeding $8-10M through reclassification of short-lived assets, flooring, HVAC, lighting, electrical systems, site improvements.
The IRS released Notice 2026-11 on January 14, 2026, providing interim guidance on applying these provisions. Investors should coordinate with their tax advisors immediately to maximize benefits.
1031 Exchanges: Still Intact
Despite periodic legislative threats, 1031 like-kind exchanges remain fully available with no new limitations. The 45-day identification and 180-day closing windows are unchanged.
Trend to watch: Reverse exchanges are surging in popularity due to limited inventory, allowing investors to acquire replacement property before selling their relinquished asset.
Hot Topic: What a New Fed Chair Means for CRE
The Transition: Powell to Warsh
Jay Powell's term expires May 2026, with Kevin Warsh nominated as his successor. Markets are watching closely for signals on monetary policy direction.
Current Position (January 2026):
- Federal Funds Rate: 3.5% - 3.75%
- Three consecutive rate cuts implemented in 2025
- FOMC held rates steady at January meeting
2026 Rate Outlook:
- Consensus expects 1-2 additional cuts, bringing rates toward 3.0% by year-end
- Mortgage rates expected to fluctuate between 5.7% - 6.5%
- GSEs received a 20.5% increase to lending caps
The Investor Takeaway: A more predictable Fed is bullish for transaction activity. The "will they or won't they cut" volatility of recent years appears to be fading, which should continue narrowing bid-ask spreads and improving deal flow.
Sources: Federal Reserve, FOMC Statements, Marcus & Millichap 2026 Investment Forecast
The Rockfish Perspective: Where We're Focused
Based on current market conditions, we believe the optimal investment profile is:
• Class C value-add assets (where 80%+ of transaction volume is occurring)
• Suburban West/Northwest Houston (positive absorption, occupancy gains, below-average new supply)
• Basis below replacement cost ($100K-$150K/unit)
• Clear value-add execution (physical improvements that justify rent premiums independent of market rent growth)
Risk Factors We're Monitoring
• Near-term concession competition in new lease-ups
• Workforce housing pressure from economic stress
• Trade policy uncertainty impacting construction costs
The Bottom Line
Houston's multifamily market in January 2026 presents a classic case of headline risk versus fundamental opportunity.
The Headlines Say: Record vacancy, negative rent growth, oversupply
The Data Shows: Collapsing construction pipeline, stabilizing pricing, surging Class C transaction volume, favorable tax treatment, normalizing Fed policy
For investors with the right strategy - targeting value-add Class C assets in suburban growth corridors - the current environment offers:
- Attractive entry pricing (~$150K/unit, below replacement cost)
- Clear exit visibility (supply-starved market by 2027-2028)
- Exceptional tax efficiency (100% bonus depreciation restored)
- Improving financing (GSE caps increased, abundant debt capital)
The question isn't whether Houston's multifamily market will recover. It's whether you'll be positioned to capitalize when it does.
Sources
- Matthews Real Estate Investment Services — Houston, TX Multifamily Market Report Q4 2025
- Marcus & Millichap — Houston 2026 Investment Forecast: Multifamily Market Report
- CoStar Group — Market Data
- One Big Beautiful Bill Act (July 2025) / IRS Notice 2026-11
- Federal Reserve / FOMC Statements (January 2026)
Rockfish Capital is a real estate investment firm focused on U.S. multifamily properties, with a concentration in the Houston market. To learn more about our current investment opportunities, visit rockfish.portal.agorareal.com.
