Apartment rents drop further, with vacancies at record high

Shifts in the Multifamily Housing Market: Understanding the Current Trends

The multifamily housing market is experiencing a significant shift, driven by a surge in new supply and weakening demand, particularly among younger workers. This trend is reflected in the national median rent for apartments, which fell by 1% in November from October, reaching $1,367, according to Apartment List. This decline marks the fourth consecutive month-over-month decrease, with apartment rents down 1.1% from November 2024 and 5.2% from their 2022 peak.

The historic surge in multifamily construction over the past few years is now pulling back, but a substantial supply of new units is still coming online, coinciding with a period of weaker demand. The national multifamily vacancy rate remained at 7.2% in November, after hitting a record high in October. This slowdown is more pronounced during the fall season, which typically sees the biggest slowdown in multifamily rents. However, this year’s decline is even more significant, with CoStar reporting the largest monthly drops in median rent in 15 years of tracking.

Factors Contributing to the Slowdown

The primary reason for this slowdown is the struggle of young people to form new households. According to Grant Montgomery, CoStar’s national director of multifamily analytics, approximately 32.5% of individuals aged 18-34 are living with family, the highest rate in recent years. This trend reflects the high rental costs that have risen over the years, as well as the tougher job market for young people just entering the workforce. The core renter demand typically comes from this younger demographic, making their struggles a significant factor in the current market trends.

The weakness in the multifamily housing market is also affecting the stocks of major public apartment REITs, such as AvalonBay, Equity Residential, and Camden Property Trust, which are all down year-to-date. Local economic factors are contributing to varying rates of decline in different markets. For example, Las Vegas is experiencing slower tourism, which is impacting jobs, while Boston is seeing a decline in federal funding for biotech and a drop in foreign students, both of which are affecting its rental sector.

Market Variations and Renter Preferences

Some markets are seeing rents drop faster than others due to local economic factors. Austin, Texas, is experiencing the biggest hit to rents, thanks to the ongoing construction of multifamily units. While rents are softening nationally, and landlords are increasing concessions, renters are increasingly searching for more affordable markets. According to a Yardi report, Cincinnati was the most searched market, followed by Atlanta and Kansas City, Missouri. The Midwest, in particular, is drawing more attention, with 11 of the top 30 cities for renter demand located in the region.

Yardi also revised its expectations for 2026 supply, anticipating a decline in new supply through 2027. However, a larger-than-expected under-construction pipeline led to an increase in previous quarterly estimates for 2025 and 2026. As construction continues to slow into next year, the overall market is expected to stabilize somewhat, according to the Apartment List report. Nevertheless, the supply boom still has a bit of runway remaining, and the demand outlook has begun to appear weaker amid a shaky labor market.