Multifamily Market to Stabilize Toward the End of 2025

Supply-chain problems and high interest rates are expected to impede the multifamily sector in the first half of 2025 before the market stabilizes later this year as more deals pencil out, according to economists speaking at the National Association of Home Builders (NAHB) International Builders’ Show in Las Vegas today.

In 2024, multifamily construction saw a significant decline as starts fell 25% to a rate of 355,000. There were approximately 1 million apartments under construction – the highest rate since 1973 – which put a damper on the apartment market.

“NAHB is projecting that multifamily construction will decline again in the first half of 2025 before moving back to long-term trends toward the end of the year as the market works though a substantial number of units under construction,” said Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis.

NAHB is expecting multifamily starts to fall 11% this year to a rate of 317,000 while increasing 6% in 2026 to 336,000.

Confidence in the market for new multifamily housing reflected mixed results in the most recent NAHB Multifamily Market Survey (MMS). While the Multifamily Production Index (MPI) increased seven points to 48 year-over-year, it is still below the break-even point of 50.

“The MPI is reflecting cautious optimism with the reading of 48, and it is what we would expect given that multifamily starts declined in 2023 and 2024,” said Nanayakkara-Skillington.

Meanwhile, the Multifamily Occupancy Index (MOI) had a reading of 81, up four points year-over-year, indicating existing apartment owners are positive about occupancy.

In addition to supply-chain problems and high interest rates, Nanayakkara-Skillington noted that the overall housing market continues to face challenges with the cost and availability of labor and developed lots, along with elevated building material prices.

On a positive front, the industry is supported by a low national unemployment rate and a potential influx of young adults as they enter the housing market.

“Currently, the number of young adults ages 25-34 living with their parents are at elevated levels,” said Molly Boesel, senior principal economist at CoreLogic. “Pent-up demand for multifamily housing will continue to build as these young adults move out of their parents’ homes.”

With the nation currently experiencing low home affordability as the 30-year fixed mortgage rate remains close to 7%, many renters are choosing to stay in the rental market. “Another factor suppressing trade-up options for renters is that single-family housing inventory remains unseasonably low because most home owners have mortgage rates below 5% and are electing to stay put,” said Boesel.

High supply helped push multifamily rents down 1% at the end of 2024, but as starts and completions slow, vacancy rates are expected to fall and rents should increase, noted Boesel.

The multifamily market is also experiencing a rise in delinquency rates. Boesel said that delinquency rates are rising due to higher interest rates, changes in property market fundamentals and uncertainty about property valuation.