Recovery in the rental housing market is happening, but it is moving at a slow pace.
Tenant demand is simultaneously resilient (due to the unaffordability of homebuying for first-time buyers) but also tepid (due to low job growth and working-age population growth).
The situation has only advanced incrementally from the summary we gave in our Q1 2026 residential update:
While growth in new supply of all types of housing, multifamily and single-family, has fallen significantly, the sheer amount of housing built over the last five years has created an overhang that would take years to absorb even under normal demand conditions.
Unfortunately, demand conditions are below-average, as growth in the labor market and working-age population are both anemic.
Rental housing is benefiting from homebuying unaffordability across the United States, with affordability for first-time buyers still hovering near its lowest level in 40 years. This is keeping many would-be homebuyers in the rental market.
In short, rental housing is slowly recovering, not because of a rebound in tenant demand but rather because of a material decline in residential completions.
As of midyear, the US multifamily industry was on track for full-year net absorption roughly on par with 2025, which was also a good year.
We still say apartment demand is “tepid” because much of this demand is temporary in nature. There is growing pent-up demand to buy homes among these forced renters. If and when homebuying affordability falls, many of them will buy homes and exit the renter pool.
Even so, signed leases are positive, in any case. It is reassuring to see net absorption finally outpace completions again. This hasn’t happened in five years.
That shift toward positive net absorption has finally allowed the national average vacancy rate to peak and begin to fall, which it has done month-over-month for most of this year.
As the level of apartment completions continues to decline going forward, we are hopeful that the pace of recovery should accelerate over the next few years.
Inter-state migration patterns continue to favor Sunbelt states like Texas, Florida, Georgia, Arizona, Tennessee, and North Carolina, but that is also where the most new supply has been delivered in recent years.
As such, the weakest markets in terms of rent growth still tend to be Sunbelt cities, while supply-constrained non-Sunbelt markets like San Francisco, Chicago, and Honolulu continue to rebound from their pandemic doldrums.
While Sunbelt multifamily is currently weaker than California and New England apartments, we remain comfortable with our Sunbelt multifamily REIT holdings and believe that long-term performance will be strong.
Multifamily Executive recently reported that in 2026, once again, one-way U-Haul data shows that the fastest population growth is happening in Sunbelt states.
To quote Cushman & Wakefield’s Q2 2026 Multifamily Market Report:
The occupancy recovery is fastest where oversupply ran deepest... The sharpest compression hit the epicenters of the construction boom: Savannah, Huntsville, Charleston, Salt Lake City and Colorado Springs shed more than 135 bps in vacancy in a single quarter. These markets built some of the most, driving vacancy highest, but recoveries have begun as the pipeline tapers and demand holds. Rent growth should broaden from the coastal markets leading into these metros as remaining supply clears.
In other words, while non-Sunbelt markets currently enjoy better supply-demand dynamics, the scales should tilt back in the Sunbelt’s favor over the next few years.
Here’s how Apartment List’s August National Rent Report summarizes the current multifamily situation:
As the rental market nears the end of its busy summer leasing season, we are continuing to see signs that the tide is turning on the soft conditions that have defined the market for nearly four years. Since April, year-over-year rent growth has been ticking up and the vacancy rate has been ticking down, indicating that this is more than a single month blip in the trend. But despite the modest tightening of recent months, multifamily conditions remain notably cool overall, and an uncertain macroeconomic outlook presents risks to rental demand. The market is definitely turning the corner, but the shift is occurring gradually.
Let’s now turn to the earnings updates for our residential REITs:
