Last year, I wrote my 2024 predictions facing uncertainty around stubborn inflation, the impact of COVID-era economic moves, wage growth and potential distress, among other issues. I end this year mostly optimistic: Strong multifamily real estate market fundamentals remain unshaken, and projected rent growth is moving in a positive direction.
However, in my 2025 predictions, I see the old paradigm—the American dream of homeownership—shifting. The age of first-time buyers is increasing. The tenuous balance of multifamily supply and demand is beginning to wobble, potentially cascading into affordability issues. And President-elect Donald Trump’s proposals for tariffs, tax cuts and immigrant deportations could spin the U.S. economy in a number of directions, from a higher deficit and hikes in inflation and interest rates to growth in jobs and revenue. He has promised to enact higher tariffs on his first day in office. The impact of other initiatives may take years to be felt. I am considering the range of scenarios that could be shaped from many actions and events.
I share these predictions to stay accountable and to show how Origin’s perspective on the multifamily real estate sector informs our investment strategy. Our perspective as investment professionals goes beyond a presidential term. My goal is to offer the knowledge and confidence necessary to stay in long-term assets that carry inherent rewards and risks, as well as the potential to grow and protect our investors’ wealth. We believe the rewards of multifamily outweigh those risks.
With that, here are my predictions for 2025.
1: Multifamily rental markets will return to positive year-over-year rent growth.
Multilytics®️, our proprietary suite of machine-learning models, says the tide is turning for Class A multifamily rents. Average national rent growth will reach 1.7% by June 2025 and 2.36% by January 2026. Of all U.S. regions, the Southeast will grow the most—4.2% by January 2026. All Origin’s target markets will clear 1.5% YOY growth by January 2026, with seven topping 4%. However, supply is expected to tumble 15.2% in 2025 and 53.8% in 2026 from its projected peak of nearly 600,000 units in 2024, according to Newmark. However, I see demand remaining high. Barring any exogenous shocks, multifamily is at the beginning of a significant bull cycle for rents. Read our 2025 rent forecast report for details.
U.S. Multifamily Rent Outlook, National and Origin Target Markets
Source: Multilytics®️
2. Interest rates will hover around 3.75% to 4.75%.
In early 2024, optimism was high that the Federal Reserve would lower interest rates multiple times. It’s happened twice. And while inflation has dipped closer to the Fed’s stated goal of 2%, I believe further cuts are unlikely. Here’s why: Housing comprises about 33% of the Consumer Price Index. We expect rental demand to remain high and rents to increase as supply falls. Wages, so far, are outpacing inflation and helping people pay their rent, even as housing prices are keeping them renters. However, several Trump policies could make it harder to keep inflation under control, keeping interest rates higher. The market’s behavior reflects that belief—although as of this writing, the Fed still had one mid-December meeting, and sentiment is leaning toward another small cut by year-end. Even if that happens, I don’t see it as the beginning of a trend, for all the reasons above and some of which I’ll cover in other predictions below.
U.S. Inflation Rate Vs. Wage Growth, October 2020-October 2024
Sources: Bureau of Labor Statistics, Federal Reserve Bank of Atlanta, U.S. Census Bureau/via Statista
3: Realized losses in all real estate loans will accelerate over 2024.
It will become more difficult to “extend and pretend,” the strategy used by banks over the past year to stretch the maturity of a loan and minimize delinquencies, with loans coming due in 2025. Distress could emerge with properties purchased at high prices in 2020-21. Overstretched lenders are snapping back to reality in a high interest-rate environment, affecting all real estate sectors. That includes multifamily, whose older-vintage properties aren’t immune. The U.S. market is set to absorb $2.0 trillion in debt maturities from 2024 through 2026, according to Newmark, which estimates that about $529 billion of that total is potentially troubled. Those loans must either repay or reap the consequences of delinquency. An increase in interest rates could exacerbate this situation further. But the good news is that this is a problem of financing and not market fundamentals, at least for multifamily.
Delinquency Rate by Property Type
Source: Trepp
4: Debt funds will continue to be a major source of real estate financing.
By October 2024, debt funds represented 17% of originations of multifamily loans, according to Newmark—an all-time high. Loan originations by banks, however, are at their lowest level in more than a decade. Agencies such as Freddie Mac and Fannie Mae, along with traditionally conservative banks and life insurance companies, are tightening lending standards to more historical norms. Regulations created after the Global Financial Crisis are disincentivizing banks to real estate loan exposure. Many multifamily owners whose 2021- and ’22-originated loans are coming due will need higher loan amounts relative to current valuations, and more flexibility in structure. Debt funds are designed to step in where alternative loan solutions are required. BlackRock recognized this potential with its recent $12 billion purchase of a private credit firm.
Lending Activity by Origination
Newmark
Sources: RCA, Newmark Research as of 10/24/24
5: The spread between homeownership and renting will moderate but stay around current levels.
Currently, the spread between homeownership and renting is at historically wide margins, helped in part by the suppression or decline of rent growth. Year over year, the monthly difference totaled more than $1,200 by Q3 2024, according to Newmark. Multilytics®️ is telling us to expect positive YOY rent growth by 2026. I believe the other side of that equation—the cost of homeownership, which includes housing values and mortgage rates—will stay mostly the same, partly because I don’t see interest rates changing much in 2025. The United States is facing a long-term undersupply of housing, and I believe housing values will remain elevated as a result.
Renting Vs. Homeownership Spread
Newmark
Sources: Atlanta Federal Reserve, Newmark Research as of 10/17/24, RealPage
6: Multifamily sales activity will tick up but stay low relative to the 2021-22 peak.
If interest rates stay within the predicted range, I believe we will see an increase in transaction volume. This will partly be due to the expected increase in YOY rent growth and the expectation that supply will continue to moderate after its peak levels in 2021 and 2022. But it’s also because of the billions in capital raised by fund managers who assumed that prices would plummet this year. That didn’t happen, mostly because so many sellers were unwilling to let go. The expected increase in the flow of capital, combined with the expectation of future rent growth due to lack of supply, will create pressure on pricing, which should result in a compression of cap rates. When that dry powder enters the market, it will be forced to accept those lower cap rates.
Multifamily Sales Volume, 2001-Q3 2024
Newmark
Sources: Newmark Research, MSCI Real Capital Analytics
7: Construction costs will be impacted by tariffs.
I think Trump is serious about implementing tariffs on China, Canada and Mexico very early in his presidency, and I believe they will have a generally inflationary effect on the cost of construction materials. This won’t seriously dent costs, at least in the short term, but it will provide an additional challenge to ongoing projects and construction starts, which I expect to pick up relative to 2024. Beyond the impact of tariffs, I expect pricing to increase more in line with the historical average of about 3% to 5%.
Permits Issued for New, Privately Owned Housing Units
8: Property insurance will normalize to an inflationary growth rate.
In 2023, multifamily property owners in Origin’s target markets faced average year-over-year increases in insurance premiums of 26% or higher—driven by natural disasters, inflation and a challenging reinsurance environment. Hurricanes Helene and Milton in 2024 added considerable pressure, with initial combined estimates of insured losses in the tens of billions of dollars. However, new data from Marsh suggests that 2025 may provide some relief for property owners. Reinsurers are benefiting from restructured insurance treaties and increases in capital, allowing them to manage these hurricane-related losses without passing excessive costs onto clients. No one can predict climate factors in the coming year, but we believe there’s strong potential for normalizing prices in 2025. Premium increases may still occur, but they are unlikely to be as steep as in prior years.
Year-Over-Year Change in Expenses and Insurance
Newmark
Sources: Newmark Research, NCREIF
9: Affordability will become an increasing issue.
According to an annual National Association of Realtors survey, the median first-time home buyer age is 38, an all-time high. The median buyer age increased to 56, another peak, and the typical repeat buyer age increased to 61 years. Younger professionals are forming households, but buying a house is out of reach, so they are renting. And as I’ve pointed out, rents are expected to increase due to a variety of factors. I see 2025, especially the last half, being a transitional year for affordability, because wages have so far outpaced inflation, benefiting renters. As rents start to pick up, that will unwind, exacerbated by the lack of supply. With significant multifamily supply not expected to hit the market until 2027, not a lot can change this situation unless housing prices decline, but this is unlikely unless something like a recession occurs.
10: QOZ law will be extended.
In his first term, Trump enacted the U.S. Tax Cuts and Jobs Act, which included Qualified Opportunity Zones (QOZs). Under current law, QOZ investments can be made until June 30, 2027, and investors are eligible to eliminate capital gains taxes on QOZ investments as late as June 2047. With Trump’s return to office, it’s likely that the law will be extended. That would be good news for investors seeking tax-deferral benefits on eligible capital gains, and good news for QOZ fund managers like Origin.
Note: If you’d like to see my predictions for years past, find them here: 2024, 2023, 2022, 2021, 2020 and 2019.
