8 Insights on Current Apartment Conditions

Sponsored by: Madera Residential

January and early February always provide a treasure trove of data and color commentary on current and forecasted market conditions. We get major data releases, forecast revisions, REIT earnings calls and major industry events like CREFC and NMHC (excellent events for gauging sentiment.)

This week’s newsletter will focus on fresh data releases from the major apartment data providers. Here are eight highlights that caught my eye:

#1: There’s a ton of demand for apartments

While the data providers differ on exact numbers, they agree on this: Apartment absorption was HUGE in 2024, well above mainstream expectations.

CoStar: “The gap between supply and demand is now at its smallest over that same period, suggesting more balanced market conditions. For the full year 2024, absorption reached 556,800 units, a 70% increase over the prior year.”

RealPage: “The U.S. apartment market has responded to the fears of oversupply with resounding appetite,” RealPage Chief Economist Carl Whitaker said.

RealPage was the only provider to report absorption topping supply in 2024. Some have questioned that number perhaps tracing to recent methodology changes on absorption. But I did some back-of-the-napkin math, and even absent that change, the 2024 absorption number would have come in as the second-highest on record behind 2021 … and roughly in line with CoStar’s absorption total.

Yardi: “Demand stayed robust through out the year in most regions … Through the first 11 months of 2024, 404,000 multifamily units were absorbed nationally, according to Yardi Matrix, while 442,000 units were completed. Both of those numbers are high by historical standards.”

#2: Rents remain flat-ish, but there are signs of momentum

Apartment List: “With December’s 0.6 percent decrease, 2024 closed out as the second straight year in which the national median rent ended the year lower than it started.”

RealPage: “U.S. apartment rents were cut on a monthly basis in each of the final three months of 2024, but those cuts were slightly less deep than the year-earlier rent cuts, appearing to marginally boost rent growth to a still-muted 0.5% growth in calendar 2024.”

#3: The New Year appears to be off to a strong start

Radix: “It’s early in the year, but the type of momentum we expected for multifamily operational results in 2025 is already visible. Occupancy, effective rent growth, and concessions are trending in a favorable direction for operators trying to rebound from the challenges of the past two years. In this week’s report, the national average occupancy rate for stabilized properties had positive annual growth for the first time since May 2022. While it is just one report, that breaks a streak of 138 consecutive weeks of year-over-year declines.”

#4: Massive demand in the Sun Belt, especially Texas

RealPage: “Dallas posted the most apartment demand in the U.S. during calendar 2024, absorbing a remarkable 36,724 units. Neighboring Fort Worth absorbed another 7,681 units. Houston claimed the second highest absorption tally in the nation in 2024 (31,925 units), followed by Austin in the No. 3 spot (29,515 units).”

Yardi: “Occupancy was flat even in many high-supply markets. For example, Austin’s occupancy rate is down just 0.2% despite it leading metros in completions as a percentage of total stock at 7.5%. Similarly, Raleigh’s occupancy rate was unchanged year-over-year despite it adding 6.2% to its stock. This is a good sign for high-supply markets, as it indicates ongoing strong absorption.”

#5: Midwest and Northeast continue to lead on rent growth, Sun Belt lags

CoStar: “At 3.2%, Detroit ended the fourth quarter with the strongest annual asking rent growth of the top 50 markets nationwide, with Kansas City and Cleveland close behind at 3.0% and 2.8%, respectively. Five of the top 10 markets for annual asking rent growth are in the Midwest, highlighting the strength of markets that avoided large run-ups of supply over the past three years.”

Apartment List: “Cleveland, OH has seen the nation’s fastest rent growth, with a 5.7 percent increase over the past year. Cleveland is joined by four other Midwestern markets among the top 10 with the fastest growth – Grand Rapids, Kansas City, Louisville, and Detroit … Many of the steepest year-over-year declines remain concentrated in Sun Belt metros that are rapidly expanding their multifamily inventory, such as Austin (-7.4 percent year-over-year), Raleigh (-4.1 percent), and Jacksonville (-3 percent).”

Yardi: “Gateway metros in the East and secondary markets in the Midwest recorded the highest rent growth, led by New York City (5.0% year-over-year), Kansas City (3.9%), New Jersey (3.8%), Chicago (3.3%) and Columbus (3.1%). Meanwhile, negative rent growth remains acute in many Sun Belt metros, led by Austin (-5.9%), Raleigh (-3.1%), Phoenix and Atlanta (both -2.9%) and Denver (-2.2%).”

#6: Data providers expecting more rent growth in 2025

RealPage: “In 2025, rents in most apartment markets are expected to grow at a much faster pace. Our forecast indicates that effective rents will grow at an average annual rate of about 2.5% nationwide.”

RealPage continues to forecast rent cuts in Austin, but growth everywhere else in 2025.

Yardi: Yardi’s public forecasts show every market producing positive apartment rent growth in 2025, even Austin at 0.4% -- up from -5.9% in 2024. Beyond Austin, other notable movers between 2024 actuals and the 2025 forecast include Raleigh (from -3.1% to +1.7%), Tampa (from -0.7% to +3.5%), Dallas (from -1.9% to +2.0%) and Atlanta (from -2.9% to +1.3%). CBRE also produced a report last quarter forecasting positive rent growth to return to all Sun Belt markets by late 2025 or early 2026.

#7: BUT improving fundamentals may not yet trigger improved deal flow

Yardi: “Multifamily also is bracing for less favorable interest rate conditions than expected. As inflation and economic growth receded, the Federal Reserve was expected to cut short-term rates through 2025 to the 3% to 4% range. But that forecast no longer seems likely. The drop in inflation has stalled, with consumer price growth rising to 2.7% in November, while Trump threatens tariff increases. The upshot is that investors’ higher inflation expectations have pushed the 10-year Treasury rate up to 4.6%, creating ongoing pricing uncertainty that could keep deal flow muted.”

#8: And apartment executives are putting optimism on hold again

NMHC: “Apartment market conditions declined in the National Multifamily Housing Council’s (NMHC’s) most recent Quarterly Survey of Apartment Market Conditions. All four indices – Market Tightness (40), Sales Volume (41), Equity Financing (48) and Debt Financing (32) – came in below the breakeven level (50), signaling less favorable conditions this quarter.”

I posted about this today on LinkedIn, but here’s the punchline: Back in October, apartment executives were more bullish on equity, debt and deal flow than at any point in two years. Fast forward three months later to today, and that optimism has dissipated. Why? Not supply or demand or rents or the economy. But because of rates, obviously. Yields on the 10-year Treasury dropped into the 3s in September, but jumped back into the 4s this month.

Higher rates = bad math for acquisitions and development = slow deal flow.

— Now Spinning on The Rent Roll Podcast —

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Episode 18 drops tomorrow, featuring a build-to-rent update with the O.G. of BTR, Redwood Living’s Steve Kimmelman, who today ranks (by far) as the nation’s largest owner of BTR nationally. We’ll talk the latest on BTR stats and then ask Steve to open up his playbook for us.

Find us on YouTube, Spotify, Apple and Amazon. The Rent Roll with Jay Parsons. Recent episodes:

Episode 15: The 2025 Outlook for Multifamily and SFR with Berkadia CEO Justin Wheeler

Episode 16: Q1’25 U.S. Apartment Market Update with IPA Research Director Greg Willett

Episode 17: The Re-Rise of the Sun Belt with Knightvest Capital CEO David Moore

DROPPING TOMORROW (1/23) Episode 18: Build-to-Rent Update with the BTR King, Redwood Living CEO Steve Kimmelman

Disclaimer: The contents of this newsletter are for informational purposes, not investment advice. No recommendation or advice is being given.

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