Jay Lybik

Senior Director of Market Research

 One year ago, the multifamily market appeared poised for a durable recovery as national rent growth finally broke a three-year deceleration. After peaking at a record 15.3% in the first quarter of 2022, rent growth fell to just 0.4% by the end of 2024 before accelerating to 0.8% in the second quarter of 2025. The rebound fueled confidence that the record 587,000-unit delivery wave of 2024, the largest since the mid-1980s, was in the rear-view mirror.

That optimism, nonetheless, proved premature. Demand cooled sharply in the second half of 2025 just as another 400,000 units delivered, pushing national rent growth negative, where it has remained for four straight quarters. The reversal is puzzling on its face: demand outpaced supply by 278,000 units to 151,000 in the first half of 2026, and the vacancy rate held at a healthy 4.5%. Construction has fallen 50% from its cycle high of 1.1 million units in early 2023 to just 554,000, the lowest since 2015. On paper, the ingredients for a rebound are in place; in practice, recovery has been slower to materialize.

The picture becomes clearer once the national numbers are broken down by region. Of the four major regions, only the South is posting negative rent growth, and has been for three consecutive years. The reason is straightforward: 55% of all new multifamily supply delivered over the past five years, roughly 1.1 million units, landed in the South, the region that led pandemic rent growth and became the primary target for new construction as a result.

Rent growth in the South has hovered near negative 2% for four straight quarters, its worst stretch since the Great Recession. Because the region holds 42% of national multifamily inventory, its persistent softness alone drags down the national average. Seven of the ten worst-performing markets nationally are in the South, led by San Antonio at negative 5.8%. Miami and Jacksonville are closest to a turnaround, ending the quarter at negative 0.2% and negative 0.6%, respectively, the latter up 200 basis points over four quarters.

The Midwest tells the opposite story. The region continues to lead the nation in rent growth, at nearly positive 2%, with five of the ten best-performing markets nationally. Milwaukee tops the Midwest leaders list at 3.4%, followed closely by Chicago at 2.9%. The contrast traces directly back to supply discipline: over the past five years, the Midwest added just 245,000 units of new supply, compared with 1.1 million in the South.

The current supply wave has no recent precedent. The market has not absorbed this much new construction since the mid-1980s, when it took roughly six to seven years for the overhang to clear and rent growth to normalize. Unit volumes delivered between 2023 and 2025 are comparable to that earlier cycle, but today's housing stock is roughly twice as large, so the overhang is smaller on a percentage basis. Even so, the industry appears to have underestimated how long a full recovery would take.

The market is now roughly halfway through the second year of soaking up this overhang, and it will take additional time to absorb units still in lease-up that have not yet stabilized. Recovery, especially for a number of markets, is unlikely to move quickly, and more likely extends into 2027 or beyond, later than most expected. This also explains why the national vacancy rate, currently below 5%, is a poor real-time gauge of market health: the figure captures only stabilized properties, which is why a sub-5% vacancy rate can coexist with negative national rent growth.

Future demand also presents a possible downside risk. In the late 1980s and early 1990s, the tail end of the Baby Boom generation was forming households at scale, a tailwind strong enough to aid absorb of the era's oversupply. Several of the demand tailwinds supporting multifamily over the last few years, including immigration, steady employment growth, and consumer confidence, have weakened. Historically, new immigrates to the United States rent in high percentages. At the same time, the roughly one-third of young adults still living with their parents need financial strength and economic confidence that they will be successful in a forming households of their own. Because these new household formations have a high propensity to rent, failure to launch due to economic conditions creates a headwind for multifamily demand.

Supply-side conditions are moving in the right direction, however. Deliveries in 2026 are projected to total just 316,000 units, a 46% decline from the 2024 peak and close to pre-pandemic five-year averages. Yet, the 2027 forecast has climbed from 240,000 to 320,000 units over the past three quarters, denying overbuilt Southern markets the pause many had hoped for and reinforcing that the broader recovery will take longer than initially anticipated.

Looking to the second half of 2026 and into 2027, performance across the multifamily market will likely remain bifurcated. The Midwest, with its more balanced fundamentals, should continue to lead the nation in rent growth followed by the Northeast and West. The South, by contrast, will remain under pressure until its supply overhang is fully absorbed, and several of its markets could see negative rent growth persist into 2027 despite steady demand and new deliveries returning to historical levels.