Quick Take: Despite macroeconomic headwinds, strong renter demand, a growing affordability gap, and slowing new supply, the multifamily real estate sector remains resilient. However, challenges like prolonged lease-ups, selective capital markets, and refinancing risks are emerging. At Origin, we see opportunity in recapitalizations and mid-market deals, especially where flexible capital can support strong fundamentals. Success for the remainder of this year will require selectivity. That means targeting high-quality, well-located assets, employing disciplined underwriting, and taking a proactive approach to risk management.
Despite macroeconomic headwinds—including a 0.2% GDP contraction, a 4.2% unemployment rate, and persistent uncertainty around tariff policies—the multifamily real estate sector remains fundamentally resilient. Robust renter demand, a widening affordability gap between renting and owning, and a sharp slowdown in new supply are supporting this stability. Yet, the sector faces challenges: slower lease-ups, selective capital markets and a looming wave of debt maturities. For investors and developers, success in 2025 will depend on disciplined underwriting and market selectivity.
Multifamily Sector Fundamentals
Over the 12 months ended in March 2025, the multifamily sector absorbed an impressive 707,811 units. That’s more than 3.5 times the long-term average. Vacancy rates have stabilized at approximately 5%, down 90 basis points from their peak in Q1 2024 and 50 basis points below the long-term average, according to Newmark’s U.S. Multifamily Capital Markets Report. These figures highlight a tightening market and consistent renter demand.
Notably, annual demand has outpaced new supply for two consecutive quarters—a trend that historically lasts about seven quarters. At the same time, the pace of new deliveries is slowing. After a peak of 585,191 units in 2024, completions are projected to drop to 431,212 units in 2025, with further declines expected through 2026, says Newmark.
Unlike previous cycles, the current outlook suggests prolonged supply constraints, reinforcing the imbalance between demand and supply. If challenges such as elevated financing costs, increased costs due to trade policies, and restrictive zoning persist, these constraints could extend even further.
Affordability remains a primary driver of demand. As of Q1 2025, owning a home costs $1,210 more per month than renting—nearly triple the long-term average gap. Household formation is accelerating. Roughly 860,000 new households projected annually through 2035, according to the Joint Center for Housing Studies. Much of this growth is expected from younger millennials and Gen Z.
Elevated mortgage rates are also keeping renters in place. National lease renewal rates reached 52.3% in May, according to RealPage, and only a small share of REIT portfolio move-outs are due to home purchases. High mortgage costs are clearly limiting the transition to homeownership, reinforcing a stable foundation for multifamily.
Supply and Demand Dynamics
Despite strong underlying demand and a cooling supply pipeline, lease-up timelines for newly delivered multifamily properties have lengthened considerably. According to The Guarantors’ 2025 Guide, average lease-up periods have stretched from the historical norm of 12 months to as long as 17 months. This shift is largely driven by elevated delivery volumes and heightened competition, often accompanied by aggressive concessions.
At Origin Investments, we are closely monitoring these market dynamics and proactively adjusting our underwriting to account for longer lease-up periods and higher upfront concession levels. These delays can create near-term cash flow challenges, postpone refinancing milestones, and put pressure on debt service coverage.
We anticipate these pressures to ease as new starts slow and deliveries decline through 2026 and beyond. In the meantime, we are taking a disciplined approach. This includes focusing on well-located projects, maintaining appropriately sized operating reserves, and collaborating closely with leasing teams to optimize absorption strategies without overextending incentives.
Multifamily Unit Supply by Quarter
Source: Newmark research/RealPage
Capital Markets
Capital markets are showing tentative signs of recovery but remain highly selective. Multifamily investment sales surged 42% year-over-year in Q1 2025. Yet activity is still 12% below the 2017-19 first-quarter average, according to Newmark. And despite $328 billion in dry powder in closed-end real estate funds, investors are concentrating on high-demand markets such as Austin, Dallas and Charlotte.
Debt origination is increasing, but acquisition financing remains below pre-pandemic levels. Fixed-rate multifamily loans are averaging 5.9% (Newmark). The Federal Reserve held rates steady at 4.25% to 4.50% in June. It projects two quarter-point cuts by year-end, though markets are anticipating three to four.
Importantly, multifamily values are more sensitive to the 10-year Treasury yield than to short-term rates. Cap rate compression will depend on lower long-term yields, which are shaped by inflation expectations, global capital flows, and supply-demand dynamics—not just Federal Reserve policy.
Private capital now accounts for 51% of multifamily acquisitions; institutional investor activity is up 66% year over year. Foreign investment is recovering but remains below historical norms due to a strong dollar and hedging costs. Cap rates are steady at 5%. But narrow spreads to BBB corporate bonds indicate limited risk compensation—making either rate declines or strong NOI growth essential, according to Newmark.
Risks and Opportunities
A significant volume of multifamily loans originated at low rates in 2020-21 will mature from 2025 through 2027, just as the Federal funds rate hovers around 4.25 to 4.50% (the effective rate is about 4.33%). Delinquency rates for CMBS-backed multifamily loans surged to 6.11% as of May, up from 1.7% a year earlier—the highest since the Global Financial Crisis, according to Yield Pro. This underscores the refinancing strain in today’s high-rate environment.
Notably, 73% of multifamily loans maturing before 2027—totaling $58.4 billion—have a debt service coverage ratio (DSCR) under 1.25x, and 17% have loan-to-value (LTV) ratios between 70% and 80% (Newmark). These metrics highlight the elevated refinancing risk facing many owners.
While the multifamily market has faced elevated stress, we’re not yet seeing widespread distress. The refinancing environment remains challenging—especially for owners with near-term loan maturities from the low-rate era of 2020–2021. However, improving fundamentals, such as strengthening demand and stabilizing vacancies, could help mitigate more severe outcomes, even if interest rates remain high.
Origin’s Outlook
At Origin, we see this as a time for both patience and preparation. Instead of expecting a wave of forced sales, we anticipate more selective, deal-specific opportunities. That includes situations where capital structures need reworking, equity gaps arise, or recapitalizations are required. In these cases, we believe Origin is well-positioned to step in with structured capital solutions like preferred equity, mezzanine debt or bridge financing. These strategies not only offer the potential for attractive risk-adjusted returns but also provide support to sponsors with fundamentally strong assets.
We’re also keeping a close eye on opportunities in the sub-$100 million segment, where private capital is most active. According to Newmark, smaller deals now account for 67% of total multifamily investment volume—up from a 59% long-term average. This shift signals increased activity and potential entry points for groups like Origin, which benefit from flexible mandates and strong execution capabilities.
Looking ahead, and even now, we’re seeing early signs of opportunity. While not every stressed owner will become a distressed seller, this environment could create pricing dislocations, recapitalization needs, or creative structuring opportunities—particularly in markets where we have deep expertise and strong underwriting conviction.
Despite ongoing macroeconomic headwinds, the U.S. multifamily real estate sector remains fundamentally resilient, but it’s at an inflection point, and the days of easy returns are over. Investors must be more selective, disciplined and market-aware than in previous cycles to succeed. And the path to investment returns requires more skill, discipline and local knowledge in order to spot the highest-potential opportunities.
