A version of this article first appeared in the CNBC Property Play newsletter with Diana Olick. Property Play covers new and evolving opportunities for real estate investors, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. Sign up to receive future issues straight to your inbox.
There are still a lot of new offerings making their way into the multifamily housing market. Together with weakening demand, particularly from the youngest workers, this is leading to an increase in vacancies and a fall in rents.
According to Apartment List, the national average apartment rent fell 1% in November compared to October and is now $1,367. It was the fourth consecutive month-on-month decline. Apartment rents have fallen 1.1% since November 2024 and are down 5.2% from their peak in 2022.
“Earlier this year, it appeared that annual growth was on track to turn positive for the first time since mid-2023; however, that recovery stalled and reversed during a particularly slow summer,” Apartment List researchers said.
After hitting a record high for that index set in 2017 in October, the national multifamily vacancy rate remained at 7.2% in November.
The historic surge in multifamily construction in recent years is now slowing, but there is still a good supply of new units coming online, although demand is significantly weaker.
Historically, fall is the steepest decline in multifamily rentals, but this year it is even more pronounced. CoStar reported its largest monthly decline in average rent in 15 years. The main reason is that more and more young people are having difficulty starting a new household.
“That group of 18- to 34-year-olds… I think up to 32.5% of them are living with families now, and that's the highest number in a long time,” said Grant Montgomery, CoStar's national director of multifamily analytics. “I think this reflects the high cost of rent, which has increased over the years, as well as the tougher job market for young people just finishing college.”
“That's traditionally where a lot of demand comes from, core tenant demand comes from that kind of younger base,” he said.
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The weakness is evident in stocks of the major public housing REITs. Names like Avalon Bay, Equity Residential And Camden Property Trust have all been canceled since the beginning of the year.
Due to local economic factors, some markets are experiencing faster rental declines than others. Las Vegas, for example, is experiencing weaker tourism, which in turn affects jobs there. Boston experienced a decline in federal funding for biotechnology as well as a decline in foreign students at its colleges and universities; Both have a hard impact on the rental sector. Austin, Texas is seeing the biggest decline in rents as more multifamily housing is built.
As rents fall across the country and landlords increase their concessions, tenants are increasingly seeking cheaper markets.
Cincinnati was the most searched market, followed by Atlanta and Kansas City, Missouri, according to a Yardi report that examined where home hunters were active last summer, traditionally the busiest time for new rentals. St. Louis saw the largest quarterly increase in renter interest and Washington, DC fell from the top spot to #4.
“The Midwest in particular received more attention than ever before, demonstrating that many of its 'hidden gem' markets are no longer a secret,” said the report, which found that 11 of the 30 cities with the highest renter demand are in the Midwest.
Yardi also revised its expectations for 2026 supply, saying that while new supply will decline through 2027, a larger-than-expected pipeline under construction led the company to raise its previous quarterly estimates for 2025 and 2026 by 6.8% and 2.5%, respectively.
As construction activity continues to slow next year, the overall market should stabilize somewhat, according to the Apartment List report.
“Nevertheless, the supply boom still has a lot to offer, and the demand outlook appears to be weakening amid an unstable labor market,” the researchers wrote.