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Market Signals: What AI Is Telling Us

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Finance
A Market Signal Worth Paying Attention To
I don’t normally comment on stock-market headlines, but a recent move by Michael Burry, the investor who famously predicted the 2008 housing crash, deserves a closer look.

Burry has shut down his hedge fund, Scion Capital, stating that the market no longer makes sense and fundamentals have disconnected from reality.

One of his biggest concerns?

A potential AI bubble.

According to Burry:

• The AI arms race is built on ultra-expensive GPUs

• These chips become obsolete every 2–3 years

• Yet the major tech firms (Meta, Amazon, Google, Microsoft, Tesla) are depreciating them over 5–6 years

• This accounting choice artificially inflates profits and valuations

When the hardware catches up to the balance sheets, Burry believes the market could face a significant revaluation of AI-driven tech companies.

Whether or not a crash materializes, this warning is important for one key reason:

And that is exactly where Class B and C multifamily, especially NOAH (Naturally Occurring Affordable Housing),  enters the conversation.

Where AI Turbulence Meets NOAH Stability
The outlook for Class B/C multifamily is not just different from commercial tech-driven assets like office, it’s fundamentally more resilient.

AI threatens office demand through automation, remote work, and corporate downsizing. Multifamily demand, especially in workforce housing, is driven by population trends, income realities, and housing necessity.

Below is what a potential AI-driven downturn could mean for our investment thesis.

1. The Filtering-Down Effect: A Net Benefit for Class B/C

In any tech slowdown, there is a flight to value.

When high-income renters experience layoffs, bonus compression, or uncertainty, they move:

• from $4,000/month Class A

• to $2,000–$2,500/month Class B

They don’t exit housing—they adjust their spend.
What this means for our portfolios

• Higher occupancy stability

• Better tenant quality in B/C assets

• Reduced delinquency risk

• Increased demand for well-maintained, non-luxury units

This is one of the major reasons Class B/C NOAH historically outperforms Class A during recessions.

2. The Supply Trap: Why Certain Markets Are Vulnerable, and Why Ours Are Not

Many Sun Belt metros (Austin, Phoenix, Nashville) are facing the largest incoming wave of Class A deliveries since the 1980s.

If demand drops due to an AI recession, these new buildings will respond the only way they can:

They will slash rents.

And rent compression will ripple downward.

Fortunately, this is not the case in our target markets.

Our Advantage: No Incoming Supply Shock in our Markets

This is one of the quiet but powerful strengths of the NOAH strategy:
Our rents are not threatened by desperate Class A concessions.

3. Single-Family Rentals as a Shadow Competitor

In tech-driven markets, downturns often lead to the rise of the “accidental landlord” or homeowners who rent out houses they cannot sell.

This typically increases competition for 3-bedroom units.

Fortunately:

Our submarkets have lower concentrations of tech workers and far fewer high-priced ownership homes.

Meaning the SFR shadow inventory effect is modest or nonexistent.

4. Financing: Multifamily Still Has the Strongest Safety Net in U.S. Real Estate

Even in recessionary periods, Fannie Mae and Freddie Mac maintain their mandate to supply liquidity to the housing market.

This creates a floor under multifamily values.

For our investors, this means:

• Refinancing remains available when needed

• Buyers remain active even during downturns

• Distress in office/retail does not translate to multifamily

• Debt markets remain functional

This stands in stark contrast to office investors reliant on retreating regional banks.

5. Portfolio Strategy: How We Are Positioning for Resilience

DEFENSIVE POSITIONING

• Prioritizing tenant retention over aggressive rent bumps

• Watching loss-to-lease to avoid unnecessary vacancy

• Keeping units functional, clean, and durable,  not luxury-focused

OFFENSIVE OPPORTUNITIES

• Avoiding heavy value-add premiums that tenants won’t pay in a softening economy

• Preserving capital for attractive future acquisitions

• Preparing to capture “filtered-down” tenants from Class A

The combination of targeted markets and disciplined operations protects us from the worst-case rent compression scenarios.

6. What This Means for the Future of NOAH Investing

Burry’s AI bubble thesis, if correct, suggests a future where:

• Tech valuations compress

• Layoffs rise

• Consumers become more conservative

• Class A multifamily weakens

• Housing affordability becomes even more critical

NOAH stands to benefit in three major ways:

1. Demand Strengthens

As high-income renters trade down, NOAH occupancy increases.

2. Supply Remains Constrained

NOAH cannot be replaced, new construction simply cannot deliver Class B rents.

3. Capital Flows In

Investors seeking stability shift away from speculative tech and into stable, cash-flowing real assets.

This positions NOAH as one of the most defensive asset classes in the market.

Bottom Line for Our Investors

Even IF an AI bubble bursts:

• Our markets are not facing rent compression from new supply

• NOAH benefits from the filtering-down effect

• Class B/C remains the most recession-resistant multifamily segment

• Debt liquidity stays open through Fannie/Freddie

• Our operational strategy is built for downturn resilience

Where the tech sector may be inflated by hype, NOAH remains grounded in human necessity and constrained supply,  the two forces that historically produce the most stable returns in real estate.

Sincerely,

Jesse Sells
Impact Growth Capital

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