The multifamily housing sector entered 2025 on solid footing, with demand surging ahead of supply for the first time since 2021. Robust absorption, moderating rent growth, and a shrinking construction pipeline are resetting market dynamics. Against a backdrop of economic uncertainty, the sector continues to show resilience, signaling a potential inflection point in the housing cycle.
Key Takeaways:
Nearly 102,000 units absorbed in Q1 2025, a 12% increase YoY
Deliveries fell to 95,000 units, down 25% YoY
Construction pipeline has shrunk 34% since Q1 2024
Rent growth holds at 2% YoY, with stronger gains in the Midwest and Northeast
Vacancy declined by 10 bps, reversing a multi-year upward trend
Demand Surges, Led by the South
Following one of the strongest years of absorption in decades, multifamily demand held strong into Q1 2025. Absorption totaled 102,000 units—12% higher than Q1 2024 and roughly 40% stronger than pre-pandemic first-quarter averages. The South continues to dominate, accounting for 53% of all move-ins, with Dallas/Ft. Worth (7,500 units) and Phoenix (5,100 units) leading the nation. Sarasota and Huntsville stood out for absorbing more than 2% of their inventory in Q1, potentially marking the beginning of a turnaround in these high-vacancy markets.
Construction Pullback Reshapes Supply Outlook
After years of elevated deliveries, the construction slowdown has firmly taken hold. Only 95,000 units were delivered in Q1, the lowest since late 2022 and down 25% YoY. Nationally, the construction pipeline has dropped to 545,000 units—its lowest level since 2018. Texas metros like Dallas, Austin, and Houston are leading this contraction, with nearly 60,000 fewer units under construction versus last year. Phoenix and Atlanta also posted double-digit declines. As a result, the supply-demand balance is beginning to normalize, setting the stage for further improvement in fundamentals.
Rent Growth Finds Stable Ground
National rent growth reached 2.02% YoY in Q1, a modest but consistent improvement from the sub-2% rates recorded in mid-2023. Asking rents remain stronger than effective rents, which are being held down by widespread concessions in competitive markets. Smaller unit sizes continue to outperform, with average effective rents increasing just over 1% nationwide. Regionally, the Midwest (3.9%) and Northeast (3.2%) are leading rent gains. San Jose (4.2%) and San Francisco (3.7%) also showed signs of recovery after several flat years.
On the flip side, Austin (-2.7%) and Denver (-2.2%) saw declines due to elevated new supply. Austin, in particular, saw more than 8.5% of its total inventory delivered over the past 12 months.
Vacancy Trends Begin to Reverse
While vacancy rates have climbed in recent years, Q1 2025 marked the first quarterly decline in some time, dipping by 10 basis points. Although nominal, this reversal is noteworthy as supply pressures ease and absorption remains strong. Smaller and mid-sized units continue to see the lowest vacancy rates, while larger new builds experience more slack. Vacancy stabilization could provide additional momentum for rent growth heading into mid-year.
Outlook: Market Discipline Returns, Fundamentals Hold Strong
Multifamily housing entered 2025 with solid fundamentals: strong household formation, tempered supply, and steady rent growth. While uncertainty remains—driven by consumer sentiment, inflation risk, and localized oversupply—the broader market is beginning to reflect healthier, more sustainable conditions.
Vacancy pressures in select metros and aggressive discounting are pressuring effective rents. But these trends are signs of market correction—not weakness. The sector’s track record is clear: multifamily has proven durable across economic cycles, with just one quarter of negative net absorption in the past 25 years. As new construction slows and demand proves durable, the second half of 2025 could usher in a return to balance and investor confidence.
What to Watch in Q2 and Beyond
Household Formation vs. Confidence: Economic sentiment matters—but fundamentals like job growth and migration patterns still drive lease activity.
Concessions vs. Reality: Effective rents may be soft in oversupplied markets, but asking rents—and long-term lease values—remain firm in most regions.
Supply Contraction: With construction starts falling and fewer units in the pipeline, select markets—especially in the South and Midwest—could face tight conditions by year-end.
West Coast Rebound: San Jose and San Francisco are starting to show signs of recovery. If tech hiring rebounds, these markets could lead the next cycle.
Sunbelt Strength: Texas, Florida, and the Carolinas continue to absorb units at record pace. As supply moderates, these high-growth markets are expected to maintain strong momentum through the second half of 2025.
Bottom Line
Despite political uncertainty and cost headwinds, the multifamily sector is showing classic signs of a healthy reset. Supply is tapering, demand remains stable, and markets are recalibrating. For investors and developers with discipline and patience, 2025 is shaping up to be a year of opportunity—not retreat.
