Quick take: The multifamily real estate market is poised for growth. Stabilizing valuations, firm demand and a slowing supply pipeline are creating a favorable investment environment. Demand is fueled by exceptional absorption levels and generational household formation, especially among Gen Z and millennials. The Sun Belt and Mountain regions continue to see significant population growth, further boosting demand in those markets. On the supply side, record-breaking deliveries are slowing, with multifamily construction starts projected to drop by mid-2025. Demand consistently outpaces supply, paving the way for potential rent growth.
After weathering a period of high interest rates and a wave of new supply, the multifamily real estate market is entering a new cycle characterized by resilience and renewed optimism. The sector is poised for growth, supported by strong fundamentals and evolving market dynamics. Long-term investment opportunities are bolstered by stabilizing valuations, robust demand and a tightening supply pipeline. All of these signal attractive prospects for the years ahead.
Since a low in December 2023, multifamily valuations have increased by 14%, according to CBRE. This reflects investor confidence in the sector. Cap rates have started to stabilize around 4.8% to 5.2%, down from 5.0% to 5.5%. Vacancy rates have stabilized and decreased to 5.2%. Net operating income margins are also on the rise as property expenses and insurance costs have moderated.
Demand Drivers for Multifamily Maintain Momentum
Despite record supply and higher interest rates, demand for multifamily housing remains strong. Quarterly demand reached 230,819 units in the fourth quarter of 2024, according to Newmark. Rolling four-quarter demand was the second highest in 25 years at 666,699 units. For 2024, absorption levels were 67% higher than annual averages seen from 2015 to 2019. In more recent data from RealPage, Q1 2025 saw 138,000 units absorbed, a record high for a first quarter in over three decades.
In addition, rent-to-income ratios have returned to pre-COVID levels of 22%, while renting continues to offer a cost advantage of roughly $1,120 per month over homeownership, according to Newmark. To put this in perspective, the long-term average spread is $416 per month. Homes are not only expensive, but qualifying for a mortgage is also out of reach for many. The annual shortfall between median household income and the qualified income needed to purchase a home at the median existing sale price was $38,980. In other words, the average family earns $38,980 less than what they need to buy a typical home at current prices.
Origin Target Markets Lead in Apartment Absorption
Absorption increased across every major U.S. market, particularly in the Sun Belt where population growth continues to drive demand and occupancy gains. Dallas, Houston and Austin led the nation in apartment absorption in 2024, according to real estate economist Jay Parsons of Modera Residential. And 61% of all net new apartment households went to Sun Belt or Mountain regions. Other markets seeing more absorption than supply were Phoenix and Jacksonville.
Source: RealPage Market Analytics
Another major reason for improving multifamily fundamentals is a strong U.S. labor force and robust new household demand. In 2024, 990,000 new households were formed. From 2020 to 2024, 8.1 million households were formed, a 9% increase from the previous five-year period. Most of this can be attributed to Gen Z and millennial move-outs. Roughly 800,000 people aged 25 to 34 formed new households from 2021 to 2024 after previously living with their parents.
Oxford Economics projects that only nine states will add at least 100,000 young adults (aged 20 to 30s) over the next decade. The list: Florida, Texas, North Carolina, Arizona, Georgia, Utah, Tennessee and South Carolina. These states are expected to add a total of 3 million young adults over the next 10 years. We expect this influx to further bolster demand for housing in Origin’s target markets in the Sunbelt and Mountain West markets.
Sources: Waymaker research, Oxford Economics
Tenants aren’t moving out to purchase homes, either. Only 8.6% of tenant move-outs were due to home purchases, down from 16% in 2022 and 20% in 2007. One key example of the cost to own versus rent comes from our recent sidecar, Azola Desert Ridge. The average single-family home price in the Desert Ridge/Scottsdale, Ariz., submarket is $950,000, which requires monthly ownership costs of approximately $6,600. That’s compared with Azola’s pro forma rent of $2,505.
Supply Tightening Ahead
While the market has seen a record influx of supply, many of these high-supply markets are now past their peak for deliveries. That will only accelerate the recovery in rent growth by the end of this year. According to CBRE’s 2025 Outlook, Sun Belt markets like Jacksonville, Dallas, Atlanta, Orlando and Denver reached peak supply in Q3 and Q4 of 2024. As supply declines, we expect each market will likely be the first to bounce back in terms of rent growth.
By mid-2025, multifamily construction starts are expected to be 74% below their 2021 peak and 30% below the pre-pandemic average, according to CBRE 2025 Outlook. Most headlines in the news revolve around a record amount of supply entering the market, and this is true. However, despite this record supply, we are seeing extremely strong demand and absorption rates. In the fourth quarter of 2024, 155,000 units were delivered compared to 230,819 units absorbed.
Multifamily real estate is entering a promising new cycle defined by strong long-term demand and a shifting supply landscape. The multifamily market is well positioned for sustained growth and appealing investment opportunities in the coming years.
