Jay Lybik
Senior Director of Market Research
The U.S. multifamily housing market is in the midst of a historic demand explosion. Over the past four quarters, absorption has shattered the pandemic record. National absorption reached an unprecedented 794,000 units over the past four quarters, eclipsing the previous high of 714,000 units set in early 2022. This surge in demand marks a dramatic reversal from the prior two years when supply consistently outpaced demand and vacancy rates ballooned.
Now, the pendulum has swung. As new construction slows from its 2024 peak, demand once again has taken the lead. Over the past year, demand outstripped supply by 259,000 units, driving the national vacancy rate down to 4.3%, a notable improvement from the 5.9% peak in early 2024. This shift ends an eight-quarter stretch where developers flooded the market with new units, pushing vacancies up from the record low of 2.5% in late 2021.
What makes this turnaround even more remarkable is the broader economic backdrop. The first half of 2025 has been anything but smooth. Tariff uncertainty and stock market volatility rattled investor confidence, and consumer sentiment dipped for five straight months before rebounding in June. Yet, the multifamily sector has proven resilient.
Labor market fundamentals have played a key role. Despite a slowdown in job creation—monthly employment growth has averaged 130,000 this year, down from 160,000 in 2024 and 216,000 in 2023—the unemployment rate has held steady at a modest 4.1%. Layoffs remain subdued, and the economy continues to generate enough jobs to support household formation.
That formation is being driven, in part, by a long-awaited demographic shift. According to the Pew Research Center, the share of 24- to 25-year-olds living with their parents has declined from a pandemic-era high of 20% to 18% recently. Many of these young adults are now forming their first household and overwhelmingly choosing to rent.
The high cost of single-family homeownership is helping give multifamily demand a tailwind. With affordability out of reach for many, most newly formed households are opting for rentals. Meanwhile, existing renters who might have transitioned to homeownership are staying put as existing home sales are declining to mid-1990s levels which is contributing to higher lease renewal rates and fewer vacant units.
Yet, despite this surge in demand and a tightening vacancy rate, national rent growth remains tepid. Effective rents rose just 0.8% in the second quarter—up from 0.2% a year ago, but still far below expectations given the market’s fundamentals.
The culprit? A lingering oversupply situation, particularly in the Sun Belt. While demand has rebounded, the glut of units delivered during the 2022–2024 boom continues to weigh on pricing power. From 2022 through mid-2025, the market delivered 1.56 million units, while demand totaled just 1.04 million. That leaves a surplus of roughly 520,000 units—most of them concentrated in Sun Belt metros.
Regionally, the Midwest has emerged as the nation’s rent growth leader, according to Real Page’s second quarter data, posting a 3.2% increase in Q2. The Northeast followed at 2.8%, while the West was flat, and the South lagged with a 1.1% decline.
Among individual Continental markets, four of the top five performers were in the Midwest: South Bend (10.2%), Lexington (6.4%), Lansing (6.2%), and Chicago (5.3%). By contrast, a handful of Southern markets experienced notable rent declines this quarter. Cape Coral/Fort Myers, LaGrange, Austin, and Naples each posted declines of more than 6.5%, with Naples falling to -7.5%, a 240-basis-point drop from the previous quarter.
Nationally, deliveries peaked in 2024 at 583,000 units—the highest since the mid-1980s. This year, deliveries are projected to fall 28% to 419,000 units. Annual starts have also plummeted even more dramatically, down 63% from their peak three years ago. At just 215,000 annual units in Q2 2025, new starts are at their lowest level in years, as developers struggle to secure equity capital to break ground.
Given the pull back in starts, units under construction predictably have declined sharply, from a peak of 1.1 million in early 2023 to just 542,000 today—the lowest since 2015. This slowdown in supply should eventually support stronger rent growth, but the roughly 500,000 units of overhang mentioned earlier will still take more time to absorb.
Looking ahead to the second half of 2025, market performance is expected to remain bifurcated. The Midwest, with its more balanced fundamentals, will likely continue leading in rent growth. Meanwhile, Sun Belt markets will remain under pressure until the supply glut is fully absorbed and some of these markets could see negative rent growth continue into 2026 even in the face of record demand.
About the Author:
Jay Lybik is the Senior Director of Market Research at Continental Properties, where he leads the company’s analysis of multifamily housing trends, economic conditions, and market performance. With nearly 30 years of experience in commercial real estate research, Jay brings a multifaceted perspective shaped by roles across the ownership, brokerage, and analytics sides of the industry. He also currently serves on the NMHC Research Committee.
Prior to joining Continental, he held senior research positions at CoStar Group, Marcus & Millichap’s Institutional Property Advisors, Equity Residential, and Cushman & Wakefield. Jay is a frequent speaker at industry events hosted by NMHC, ULI, NAA, and NAIOP, and his commentary has been featured in numerous outlets including The Wall Street Journal, CNN, The New York Times, The Washington Post, Los Angeles Times, Multifamily Executive, and Multihousing News.
About Continental Properties
Continental Properties is a National Multifamily Housing Council Top 10 developer, owner, and operator of rental home communities, retail, and hospitality properties. Since its inception in 1979, the company has developed 137 apartment communities, encompassing over 37,000 apartment homes across 20 states. In addition to its development portfolio, Continental Properties has strategically acquired nine apartment communities, further expanding its national footprint.
