Multifamily Market Shifts from Boom to Constraint as Vacancies Hit Record 7.3%

ORLANDO, FL — The rental market is transitioning from a pandemic-era boom to a more constrained development cycle, as rising vacancies, tighter financing and softer labor market conditions reshape multifamily performance nationwide, economists said at the International Builders’ Show hosted by the National Association of Home Builders.

Sales Activity Rebounds as Supply Expands

After a three-year slump, multifamily property sales rebounded in 2025, rising 15% as new supply entered the market. The recovery was broad-based, with 80% of metros posting sales gains compared to just 20% 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.”

Despite home affordability challenges keeping many renters in place, elevated supply pushed multifamily rents down 1% year-over-year, while single-family rent growth slowed. Supply-constrained metros such as Chicago, New York and Philadelphia maintained stronger rent performance, while supply-heavy markets including Phoenix, Tampa and Las Vegas experienced softer conditions.

“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.”

Property Values Decline, Delinquencies Edge Higher

Multifamily property values fell 4% in 2025 compared to 2024 and remain roughly 28% below their 2022 peak, though they are still 8% above 2019 levels.

Delinquency rates are rising but remain well below those seen in the office sector.

“Delinquency rates are rising due to higher interest rates, changes in property market fundamentals and uncertainty about property valuation,” said Boesel.

Starts Pull Back After Historic Peak

On the construction side, multifamily starts peaked at 547,000 units in 2022 before declining sharply to 355,000 units in 2024. A modest rebound is forecast for 2025, with starts expected to increase 16% to 413,000 units. Looking ahead, starts are projected to fall 5% in 2026 to a 392,000-unit annual pace and decline another 6% in 2027 to 367,000 units, leveling near pre-pandemic norms.

“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.”

Larger Properties Dominate Production

The mix of multifamily production continues to shift toward larger projects. Buildings with 50 or more units accounted for 54% of completions in 2024—the highest share in decades.

Meanwhile, the “missing middle” segment—including townhouses, duplexes and small multifamily properties—remains underdeveloped. Apartments in two- to four-unit properties totaled just 4,000 starts in the third quarter of 2025, representing only 3% of multifamily production.

Regional Completion Growth Led by the South

All regions recorded increases in multifamily completions in 2024, led by the South, which dominated total volume. Growth rates were as follows:

• South: +37%
• West: +36%
• Midwest: +31%
• Northeast: +23%

Production Sentiment Improves Despite Headwinds

According to the latest NAHB Multifamily Market Survey, production sentiment improved year-over-year even as national vacancy rates climbed. The Multifamily Production Index (MPI) registered 45, down three points from a year earlier.

“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.

The Multifamily Occupancy Index (MOI) posted a reading of 74, indicating apartment owners remain positive about occupancy levels.

Looking ahead, economists noted that the sector could benefit from a potential influx of young adults entering the housing market, providing longer-term demand support even as near-term development moderates.