For the past few years, renters across many U.S. cities have enjoyed a rare period of relief in the housing market. Falling rents and a surge of new apartment construction temporarily shifted power toward renters, especially in larger metropolitan areas. Meanwhile, smaller or tertiary markets remained relatively flat or experienced modest increases as they tried to catch up. However, this renter-friendly era is coming to an end, and the latest multifamily market trends show a significant shift underway. Whether you're a renter, landlord, or real estate investor, understanding these changes is crucial.

The End of the Renter-Friendly Market

With mortgage rates still hovering at historically high levels and new construction starting to slow dramatically, landlords are beginning to regain leverage. According to CoStar, by late 2025, every primary metro market is expected to experience rent growth. This marks the end of a short-lived period where renters held the upper hand.

This change is happening at a pivotal time for the U.S. economy. The Federal Reserve's ongoing efforts to control inflation have been partially successful, with shelter costs rising at just 4.4% annually as of January 2024—the lowest rate since 2022. However, with rent growth expected to resume across the country, shelter costs may accelerate again, keeping overall inflation elevated. This makes future interest rate cuts from the Fed less likely, creating further headwinds for those looking to expand their real estate portfolios.

Multifamily Market Trends Driving the Shift

Regional Variations

The resurgence of rent growth isn’t uniform across the country. The Sun Belt and Mountain West regions—hotspots for multifamily development over the last few years—have been dealing with an oversupply of new units, which temporarily slowed rent increases. However, as these regions absorb new inventory, they are expected to stabilize, with rent growth returning in 2025.

In contrast, regions like the Midwest and Northeast have not experienced the same level of new construction. These markets, which saw more modest rent increases during the pandemic, are now positioned to outperform, benefiting from tighter supply and consistent demand.

Supply and Demand Imbalances

The multifamily construction pipeline is drying up fast. Construction starts are projected to be 74% lower in 2025 compared to their 2021 peak. Developers are facing higher costs, tougher lending standards, and difficulty securing equity due to rising interest rates. While demand for rental housing remains strong, new supply is set to decline significantly, which will only add more pressure to the market over the next few years.

Compounding Challenges for New Supply

Adding to the pressure on the multifamily housing market are two major policy threats:

• Mass deportations: Approximately 13% of the U.S. construction workforce is made up of undocumented workers. Large-scale deportations would shrink the labor pool, drive up wages, and cause project delays.

• Tariffs on building materials: The U.S. relies heavily on materials from Canada and Mexico, which together supply roughly 25% of the country's building materials. Tariffs on these imports would further increase costs, making new developments even less financially feasible.

These issues are already having an impact. As of mid-2024, building permits for multifamily units have dropped 31% year-over-year. High construction costs, restrictive zoning laws, inflation, and tighter credit have all contributed to this decline. With fewer projects in the pipeline, the available rental housing supply is expected to tighten considerably over the next 12-24 months.

What Renters and Investors Should Expect

Looking ahead, vacancy rates are expected to increase slightly in the short term due to the recent wave of new units hitting the market. However, experts forecast moderate rent growth across most regions.

• Freddie Mac projects 2.2% rent growth in 2025 with vacancy rates rising to 6.2%.

• CBRE is slightly more optimistic, forecasting 2.6% rent growth and a vacancy rate under 5%, citing strong demand and fewer new completions.

For investors, this signals a pivotal moment. With the market transitioning out of a brief renter-friendly period, savvy investors are looking for opportunities to position themselves for the next wave of growth.

Why Now May Be the Time to Invest

At first glance, today's market might appear challenging. High interest rates, sticky inflation, and global uncertainty are causing many to hesitate. But veteran investors like Ken McElroy see this as the perfect time to act. The combination of strong renter demand, slowing new supply, and rising rents creates ideal conditions for long-term value growth.

Cap rates have flattened, and property values have adjusted, opening the door for value-driven investors who are willing to take a long-term view. Investors who focus on multifamily investment opportunities in high-demand markets stand to benefit from the next cycle of rent growth and appreciation.

As Warren Buffett famously said:

“Be fearful when others are greedy, and be greedy when others are fearful.”

Why Multifamily Remains a Strong Asset Class

Despite the current challenges, multifamily real estate remains one of the most resilient and attractive sectors for long-term investors. Several key factors continue to support demand:

1. Home prices are still rising, keeping many would-be buyers in the rental market.

2. Inventory for single-family homes remains historically low.

3. Millennials and Gen Z are forming new households, often preferring rentals in affordable, urban areas.

4. Multifamily properties have a track record of outperforming other real estate sectors during economic downturns.

These fundamental strengths make multifamily real estate a strategic choice for those seeking both stability and growth.

Final Thoughts

The multifamily housing market is entering a new phase. We're shifting from oversupply and declining rents back into a period of increasing rents and tightening inventory. For renters, this means higher costs. For investors, it signals an opportunity to buy smart, add value, and benefit from long-term appreciation and cash flow.

Let's connect if you're interested in learning how to leverage these trends or exploring ways to combine impact investing with long-term financial growth. The next chapter of multifamily investing is already being written. Will you be part of it?

Investing for Impact,
Randy Hubbs
📧 [email protected]
🌐 www.LegacyInvestors.US
📆 Schedule a Call with Randy