The rental market has slowed following a pandemic-era boom due to demographic changes, softer labor market and rising vacancies and is moving towards a more constrained development environment, according to economists speaking at the National Association of Home Builders (NAHB) International Builders’ Show in Orlando today.

After a three-year slump, multifamily property sales rebounded in 2025, increasing 15%, as fresh supply came on to the market. This turnaround was broad-based with 80% of metros seeing an increase in sales compared to only 20% of metros in 2024.

“The regional sales shifts were notable, as we saw particularly strong growth in Midwest and California metros,” said Molly Boesel, senior principal economist, Cotality. “Meanwhile, some Sun Belt markets that surged in 2024 posted declines in 2025.” 

With the nation still experiencing home affordability challenges, many renters are choosing to stay in the rental market. High supply helped push multifamily rents down 1% year-over-year while single-family rent growth slowed. Multifamily rents remained strong in supply-constrained metros, like Chicago, New York and Philadelphia. Meanwhile, rents weakened in supply-rich metros, like Phoenix, Tampa and Las Vegas.
 
 “The national multifamily vacancy rate ran up to a record high 7.3% in December,” said Boesel. “We're past the peak of a multifamily construction surge, but a healthy supply of new units is still hitting the market and colliding with sluggish demand, causing vacancies to continue trending up.”

Multifamily property values declined 4% in 2025 compared to 2024 and are roughly 28% below the 2022 high. However, values are now 8% above 2019 values.

The multifamily market is still experiencing a rise in delinquency rates but remain well below office building delinquencies. “Delinquency rates are rising due to higher interest rates, changes in property market fundamentals and uncertainty about property valuation,” said Boesel.

On the construction front, multifamily starts peaked in 2022 at 547,000 units, then declined sharply to 355,000 units in 2024. A modest rebound is expected in 2025, with starts forecasted to increase 16% to 413,000 units. (Note that the year-end government data had yet to be released at the time of this presentation.) Looking ahead, multifamily starts are anticipated to fall 5% in 2026 to an annual pace of 392,000 units and decline an additional 6% in 2027 to a 367,000 rate, leveling off near pre-pandemic levels.
 
 “The multifamily market has slowed due to tighter financing and elevated construction costs and is moving towards a more constrained development environment,” said Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis. “However, despite the pullback in starts, multifamily completions reached a 38-year high in 2024 with 608,000 units as projects initiated during the boom years were delivered to market.”

The composition of multifamily production has shifted toward larger properties as 50+ unit buildings accounted for 54% of completions in 2024, the highest share in decades.

Meanwhile, the “missing middle” construction sector—which includes development of medium-density housing, such as townhouses, duplexes and other small multifamily properties—remains limited. Nanayakkara-Skillington explained that the multifamily segment of the missing middle (apartments in 2- to 4-unit properties) has generally disappointed since the Great Recession, totaling just 4,000 starts in third quarter of 2025, representing only 3% of multifamily production.

Confidence in the market for new multifamily housing shows production sentiment improving, while occupancy conditions remain comparatively strong despite elevated vacancies nationally, according to the most recent NAHB Multifamily Market Survey (MMS). The Multifamily Production Index (MPI) had a reading of 45, down three points year-over-year. 

“In addition to tight lending conditions and high construction costs, the local regulatory environment continues to be a major headwind to faster growth,” said Nanayakkara-Skillington. 

Meanwhile, the Multifamily Occupancy Index (MOI) had a reading of 74, indicating existing apartment owners are positive about occupancy. 

On a positive note, the industry is supported by a potential influx of young adults as they enter the housing market.