U.S. Multifamily Market 2026: The Supply Wave Crests as Demand Surges

U.S. Multifamily Market 2026: The Supply Wave Crests as Demand Surges

Vacancy Rates Show the Cycle Turning

National apartment vacancy peaked in late 2024 and early 2025 and is now stabilizing, though reported rates vary significantly by source and methodology. CBRE tracks vacancy at 4.8% to 4.9% across its 69-metro universe, falling below the long-term average of 5.0% in Q1 2025. RealPage reports stabilized occupancy of 95.7% (4.3% vacancy) in Q2 2025, the highest since Q3 2022. CoStar and Apartments.com report a higher 8.0% to 8.1% because they include lease-up properties and a broader rental universe. The Census Bureau's rental vacancy rate was 7.2% in Q4 2025. Apartment List's national vacancy index hit 7.4% in February 2026, a record for the index dating to 2017. The wide variation reflects methodological differences: CBRE and RealPage focus on stabilized, professionally managed properties, while Census and CoStar capture much broader universes.

Rent Growth Muted but Recovering

National rent growth hovered near 1% through most of 2024. CoStar reports year-over-year asking rent growth of 1.0% in December 2024, with national rent per unit at $1,729. CBRE shows average monthly rent of $2,184 in Q1 2025, up 0.9% year-over-year. RealPage tracked effective rent at $1,869 in Q2 2025, up 2.1% year-over-year. However, Apartment List reports the national median rent fell to $1,357 in February 2026, down 1.5% year-over-year and 5.9% below the 2022 peak.

Forecasts for 2025 range from 2.0% to 3.5% growth: Fannie Mae projects 2.0% to 2.5%, Freddie Mac forecasts 2.2%, and Yardi Matrix predicts 2.4% on Class A and B and 1.7% on Class C. Regional divergence is substantial: the Midwest led at positive 3.7% year-over-year in Q2 2025, while Austin declined negative 5.9%.

Cap Rates Stabilize Near Cycle Highs

National multifamily cap rates averaged 5.7% in Q3 and Q4 2025, flat from Q4 2024. Marcus & Millichap pegged the average at 5.8% between July 2023 and June 2024, the highest since 2014, with modest compression of 7 basis points beginning in Q1 2025.

Class, industry data shows Class A averaging approximately 5%, Class B at roughly 7%, and Class C at 7% or higher. More granular data shows Class A infill stabilized product at 4.5% to 5.75% in gateway markets. CBRE forecasts long-term cap rate stabilization at roughly 4.5% as rate cuts materialize.

Cap rate spreads to Treasuries have compressed well below historical averages: with multifamily at 5.5% to 5.7% and the 10-year Treasury at 4.2% to 4.5%, the spread is only approximately 100 to 150 basis points versus a historical norm of 250 to 500 basis points.

The Construction Pipeline Is Draining Fast

The 2024 delivery wave was massive: approximately 585,000 to 675,000 apartment units were completed, the highest since the mid-1980s. But the pipeline is contracting sharply. Multifamily starts (5 or more units) fell 37% from the 2022 peak of 531,000 units and sit at the lowest level since 2013. The under-construction pipeline dropped to roughly 585,000 market-rate units by mid-2025, down from a peak of approximately 1.1 million in early 2023. Completions are forecast at roughly 410,000 to 550,000 units in 2025 (varying by source) and potentially as low as approximately 250,000 in 2026 at current starts pace. The NMHC's December 2024 construction survey found 78% of respondents reported delays, with 95% citing permitting and 68% citing economic feasibility as causes.

Demand Has Surged to Absorb the Supply Wave

Absorption dramatically outpaced expectations. Full-year 2024 net absorption reached 557,000 to 667,000 units depending on source, up roughly 70% over 2023. CBRE reported Q1 2025 net absorption of 100,600 units, the strongest first quarter since 2000 and more than 3 times the pre-pandemic Q1 average. Newmark's trailing 12-month absorption through Q1 2025 reached 707,811 units, more than 3.5 times the long-term average, with demand outpacing supply by 131,151 units. RealPage shows absorption near 800,000 units on a trailing annual basis as of Q2 2025, though Q4 2025 saw negative net demand of roughly 40,400 units, pulling full-year 2025 absorption down to approximately 365,900 units.

Top markets for 2025 deliveries include New York (leading nationally), Dallas (28,958 units), Austin (26,715 units), and Houston (14,439 units). The South accounts for 52.5% of all new units, with Texas and Florida alone representing 30% of the national total.

Interest Rates Squeeze Development Feasibility

Multifamily construction loan rates in 2025 range from 6.10% (HUD 221(d)(4) program) to 7.30% to 8.30% (bank loans at SOFR plus 275 to 375 basis points) to 8.75% to 9.25% (community bank loans at Prime plus 100 to 150 basis points). Permanent agency debt is available in the low-5% range, with 10-year fixed as low as 5.45% for properties over $6 million. Fannie Mae and Freddie Mac are offering $146 billion in combined lending capacity for 2025. The MBA estimates multifamily originations at $297 billion in 2024 and $390 billion in 2025.

The typical development yield-on-cost spread runs 150 to 200 basis points over market cap rates in primary markets and 200 to 300 basis points in secondary markets like Nashville, Austin, and Raleigh. With stabilized Class A cap rates at 4.5% to 5.0% and elevated costs, developers need yields of 6.0% to 7.0% or higher to justify risk, a threshold many projects fail to reach at current rent levels and construction costs.

Capital Flows Recover as Investors Favor Multifamily

Multifamily transaction volume reached approximately $146 billion in 2024, up 22% year-over-year. Q1 2025 investment volume jumped 33% year-over-year to $28.8 billion, the highest first quarter since 2022, with multifamily representing 33% of all commercial real estate investment. Through Q3 2025, year-to-date volume reached $108 billion. Private capital dominates at 53.5% of transaction volume, while institutional investors declined to 11.6% from 22.1% the prior year. REIT and public company share surged to 20.5% from just 3.6%. A CBRE survey found 72% of investors prefer multifamily for 2025 acquisitions, far ahead of 37% for industrial.

Affordability Remains Stretched Nationwide

The national rent-to-income ratio stands at approximately 31% to 33% of renter household income. The Census Bureau reports a median of 31% in 2024, unchanged from 2022 to 2023, while other data sources calculate 32.8%. A record 22.6 million renter households (49.7%) spent more than 30% of income on housing in 2023, with 12.1 million severely cost-burdened at over 50%. Among renters earning under $30,000, 83% are cost-burdened. The Federal Reserve found that nearly 25% of renters earning under $100,000 were behind on rent at some point in 2024.

Construction cost per unit ranges from $150,000 to $250,000 for basic mid-rise (excluding land), with per-square-foot costs averaging roughly $350 nationally and ranging from $210 to over $700 depending on building type and market. San Francisco and New York anchor the high end; Phoenix and secondary Southern markets sit at the low end around $218 per square foot.

Implications for Feasibility and Valuation

Multifamily stands at an inflection point: record absorption has nearly balanced record supply, and the rapidly draining construction pipeline suggests 2026 to 2027 could see meaningful rent acceleration as completions potentially fall below 300,000 units while household formation continues. Lenders evaluate multifamily pro formas through DSCR coverage that must account for the absorption risk inherent in new construction. For feasibility analysis, the critical question is whether current rent levels and construction costs support acceptable development yields. In many gateway markets, total development costs exceeding $350,000 per unit combined with stabilized cap rates in the mid-5% range produce yield-on-cost metrics that barely compensate for development risk. Secondary markets with strong employment growth, lower land costs, and favorable regulatory environments continue to offer development spreads of 150 to 250 basis points, making them significantly more attractive for new investment. The supply-demand rebalancing underway creates a narrowing window for acquisitions of stabilized assets at cycle-high cap rates before compression resumes.

For lenders and investors evaluating projects in this sector, UnionMetric provides independent multifamily feasibility study services that meet SBA and USDA requirements.

Sources

1. CBRE, U.S. Multifamily Recovery Continues as Vacancy Rate Falls, Q1 2025
2. NAA/RealPage, Apartment Market Pulse, Summer 2025
3. CoStar Group, Apartments.com Multifamily Rent Report, Q4 2024
4. [Income approach modeling](/insights/income-approach-feasibility-studies-dcf-noi-capitalization-guide) for multifamily requires sensitivity testing across occupancy, effective rents, and operating expense ratios.

1. Apartment List, National Rent Report, February 2026
2. Fannie Mae, Multifamily Economic and Market Commentary, January 2025
3. Freddie Mac, 2025 Multifamily Outlook
4. Arbor Realty Trust/Chandan Economics, Regional Multifamily Cap Rates Converge, Q4 2025
5. Marcus & Millichap, Research Brief: Investor Insights, October 2025
6. Newmark, United States Multifamily Capital Markets Report, Q1 2025
7. MSCI Real Assets/Multifamily Dive, Deal Volume Increases 22% in 2024
8. Harvard Joint Center for Housing Studies, Renters' Affordability Challenges Worsened Last Year, 2024
9. U.S. Census Bureau, American Community Survey 1-Year Estimates, September 2025
10. RSMeans, How Much Does It Cost to Build an Apartment Complex, 2025 Guide