➤Key Highlights

Multifamily fundamentals softened from their post-pandemic peaks as new construction deliveries outpaced tenant absorption. The national vacancy rate rose to around 4.4% by Q3 2025, largely due to a surge of about 92,000 new units delivered in a single quarter. Rent growth decelerated sharply, with effective rents essentially flat quarter-over-quarter and up only about 0.5% year-over-year, a major step down from the elevated growth of prior years.

Demand did not disappear, but it lagged the supply wave. Net absorption fell to roughly 43,200 units in Q3, about 73% below the prior year and the lowest third-quarter print since 2022. Even so, occupancy remained historically resilient: vacancy stayed under 5%, and 52 of 69 tracked markets still posted positive absorption as of late 2025. The core dynamic of 2025 was not a collapse in renter demand; it was a market working through an unusually large pipeline.

Investor appetite for apartments endured through tighter financing conditions. Multifamily investment volume reached approximately $108 billion through Q3 2025, up around 7.5% year-over-year, and nearly 19% higher on a comparable basis excluding one large 2024 portfolio transaction. This underscored that institutions continued to treat multifamily as a priority allocation.

Lending remained selective. Higher interest rates compressed yield spreads and forced more conservative underwriting, but cap rates only drifted modestly into the low-5% range on average rather than blowing out. Well-capitalized REITs, private equity funds, and large sponsors continued to transact, building on moves like Blackstone’s multibillion-dollar apartment REIT acquisition in late 2024, which helped support 2025’s volume.

On the development side, construction financing became materially more difficult. This contributed to a steep drop in new starts by mid-2025, accelerating the contraction in future supply that will be a defining feature of the 2026–2027 landscape. Equity capital increasingly targeted high-growth Sun Belt markets and newer, stabilized product, reflecting a cautious but sustained confidence in the sector’s long-term demand profile.

Housing affordability and rent growth politics drove much of the policy discussion in 2025, but the outcomes diverged sharply by region.

Federal action remained incremental: the administration leaned on subsidy tools and higher GSE loan caps for affordable rentals rather than sweeping national reforms. The net result was a patchwork environment where some markets incentivize new supply and flexible rents, while others trade growth for heavier regulatory oversight. Investors are increasingly segmenting strategies accordingly, favoring landlord-friendly jurisdictions when underwriting long-term rent and NOI growth.