Apartment Market Pulse Q4 2025

Apartment Market Pulse Q4 2025

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Inflation, Labor Market Conditions and Elevated Deliveries: Core Trends Shaping U.S. Multifamily

8 minute read

Economic Output Remains Robust Even with Declining Employment and Rising Inflation

The final quarter of 2025 was marked by the longest government shutdown in United States' history, which led to absences and delays in federal agency economic data. As the darkness in available figures started clearing in December and into January of this year, the emerging picture pointed to continued expansion in economic activity.

Real gross domestic product (GDP) advanced at a 4.4% annual rate in the third quarter, boosted by strong consumer spending, government expenditures and exports. The fourth quarter GDP data will not be released by the Bureau of Economic Analysis until later. However, according to the Atlanta Federal Reserve Bank's GDPNow measure, the fourth quarter estimate of annualized real GDP hovers around 5.4%, signaling a vibrant close to 2025.

At the same time, GDP data is moderated by a cooling employment market and rising inflation, both of which are increasing financial pressures on a large share of American households. Corporate executives are seeking to contain costs amid swelling waves of uncertainty brought about by trade negotiations, tariffs and geopolitical events.

Employment Momentum Continues on a Downtrend

Organizations added only 584,000 net new jobs to payrolls in calendar year 2025, about 71% less than the 2 million new positions created in 2024. In tandem with a slowdown in hiring, companies announced 1.2 million job cuts during 2025. The unemployment rate rose from 4.0% in January to 4.4% in December 2025.

Adding nuance to the employment picture, there were 5.3 million people employed part time in December of last year, mostly due to having their work hours reduced or not being able to find full-time jobs. In addition, 6.2 million people were categorized by the Bureau of Labor Statistics as "not in the labor force [but] who currently want a job," an increase of 684,000 people from the same period in 2024. The BLS does not define them as "unemployed" because "they were not actively looking for work during the 4 weeks preceding the survey or were unavailable to take a job." The takeaway is that over 11 million people are marginally attached to the labor market, likely experiencing economic and financial constraints.

Inflation Remains Stubbornly Elevated

The other major economic concern stems from the trajectory of prices facing American consumers at grocery stores, gas stations, doctor's offices, clothing retailers and other markets. The Consumer Price Index for all items advanced 2.7% during the December 2024 to December 2025 period. Importantly for many households, food prices rose 3.1% on account of higher prices for both groceries (up 2.4%) and restaurant meals (up 4.1%).

Other major categories also displayed rising inflation. Energy prices rose 2.3% in 2025 following declines of 0.5% in 2024 and 2.0% in 2023, on account of higher costs for utility gas service (up 10.8%), fuel oil (up 7.4%) and electricity (up 6.7%). Gasoline prices were the only energy category to see a decline of 3.4% in 2025.

Inflation hit vehicle insurance prices with a 2.8% increase in 2025, as did new and used cars and trucks. In addition, prices for medical care rose 3.2% in 2025, in the wake of a 2.8% increase in 2024.

The other major inflation metric-the Personal Consumption Expenditures Index-also notched unwelcome gains, rising 2.7% in October and 2.8% in November, based on the latest data. Insurance, health care and housing led the major categories with the largest price gains. The PCE index, excluding food and energy prices, is the go-to indicator for the Federal Reserve when it assesses inflationary momentum.

Consumer Sentiment Declines Over Job Worries and Inflation

With inflation squeezing take-home paychecks and the prospect of job security dimming, it is not surprising that Americans are feeling downbeat.

The Conference Board's Consumer Confidence Index declined for a fifth consecutive month in December 2025, weighed by negative views of business conditions, stagnating income and job cuts. The index takes into account consumers' perceptions of current conditions-the Present Situation Index-as well as the outlook for the next few months-the Expectations Index. The Present Situation Index dropped by 9.5 points to 116.8 in December, while the Expectations Index held steady at 70.7. Notably, consumers remain pessimistic about the outlook, with the Expectations Index showing values below 80-a recession signal-for 11 consecutive months.

The University of Michigan Consumer Sentiment Index showed similar declines in the last quarter of 2025. The university survey underscores that sentiment remains over 20% lower than 2024.

Federal Reserve Cut Rates Three Times in 2025

Concerned about the sharp decline in employment and job prospects, the Federal Reserve enacted three, 25-basis point rate cuts in 2025, stating its intent to curtail further job losses. The Fed acknowledged that the economy remains on a growth path with inflation running above its stated 2.0% target. In the short term, the central bank seems more concerned about the negative impact on economic growth stemming from job losses than the trajectory of price gains.

Looking to the next few months, expect the Fed to maintain the current policy and keep rates unchanged, while assessing the impact of its monetary easing on the economy. However, it is worth noting that the bank remains under significant political pressure to lower rates.

Economic Outlook

As we move through the first quarter of 2026, economic forecasts remain optimistic about the growth trajectory. Most economists expect GDP to continue on a positive track, with consumer spending providing a solid foundation.

At the same time, as Americans continue to face rising prices, stagnating wages and job uncertainty, housing affordability will take an even more elevated place on the list of concerns. Real estate markets continue to struggle with a shortage of inventory. The silver lining, particularly for markets in the South, is that the number of new apartment units built over the past three years provides more options to negotiate a better rate.

U.S. Apartment Market

Multifamily housing demand softened meaningfully in Q4 2025, marking a notable shift in national fundamentals. Annual absorption fell to about 366,000 units, down 44.8% year-over-year and 42.3% quarter-over-quarter, reflecting slower leasing momentum compared with earlier quarters in the year. At the same time, annual completions totaled about 409,000 units, representing a more moderate decline of 30.0% year-over-year and 13.4% quarter-over-quarter. This dynamic pushed the market into a net supply overhang, with completions exceeding absorption by 43,530 units. After three consecutive quarters of demand outpacing supply, Q4 marked an inflection point where new deliveries once again surpassed leasing activity. The resulting net absorption ratio of -11.9% underscores the degree to which supply offset annual demand during the quarter. Overall, Q4 2025 signals a transition from demand-led tightening earlier in the year to a more balanced, and temporarily oversupplied, environment entering 2026.

National effective rent growth decelerated in Q4 2025, reflecting a more normalized pricing environment amid softer demand and elevated supply delivery. RealPage rent growth measured 1.5% year-over-year growth in Q4 2025, down from 2.0% in both Q2 and Q3, indicating a modest cooling in rental rate momentum heading into year-end. CoStar rent growth slowed more sharply, falling to just 0.1% year-over-year in Q4 2025, compared with 0.3% in Q3 and 0.6% in Q2.

Occupancy trends remained relatively stable despite the shift in absorption. RealPage national occupancy held at 94.8% in Q4 2025, down from the mid-year peak but consistent with late-2024 levels. This pattern suggests that occupancy conditions remained resilient for much of the year before moderating slightly in the second half. CoStar occupancy measured lower at 91.5%, though similarly steady quarter-to-quarter. Overall, occupancy remains elevated by historical standards, though the slight downward movement in late 2025 aligns with the reemergence of supply exceeding absorption.

On a metro-level, rent performance remained mixed. Among the strongest markets were Providence, R.I. (+4.0%), Chicago (+3.8%) and Norfolk, Va. (+3.4%), posting the highest year-over-year effective rent growth in Q4. In contrast, several Sun Belt metros continued to experience rent declines, led by Colorado Springs, Colo. (-7.6%), Austin, Texas (-7.4%), and Denver (-7.3%). This divergence reflects ongoing regional normalization, with Midwest and Northeast metros demonstrating greater rent resilience relative to oversupplied Western growth markets. CBRE reported that the Midwest showed the strongest year-over-year rent growth, followed closely by the Northeast and then the Pacific region. In contrast, the South-Central region had an average negative rent growth of -3.2%, while the Mountain region saw an average decline of about -5.5%.

U.S. Capital Markets

Multifamily investment activity strengthened in Q4 2025, signaling improving liquidity and investor engagement. Quarterly sales volume reached about $41.3 billion, up 14.0% quarter-over-quarter and 16.7% year-over-year, representing the highest transaction volume recorded in 2025.

Pricing remained stable, with the average price per unit at about $215,000, essentially flat year-over-year (+0.1%) despite a modest 2.0% quarterly decline. The combination of rising deal flow and steady pricing suggests that buyers are increasingly reentering the market, supported by improving confidence around interest rate stability after the Fed's rate cuts in 2025.

Among the CoStar markets in Q4 2025, New York was the market with the highest sales volume at over $3 billion, followed closely by Los Angeles at nearly $3 billion and Washington, D.C., at nearly $2.5 billion. Overall, capital market momentum accelerated even as operating conditions softened slightly, highlighting continued institutional demand for the asset class.

U.S. Build-to-Rent (BTR) Market

The single-family build-to-rent sector continued to moderate in Q4 2025 across key performance indicators, with rent growth and development activity slowing further. National BTR rents averaged $2,198, representing a 0.4% year-over-year decline, signaling a slight cooling in rental pricing after prior expansion. Despite softer rent performance, occupancy strengthened modestly, rising to 92.3%, up 0.9 percentage points from the same quarter the prior year.

Development activity declined sharply, with units under construction falling 39.2% year-over-year to 64,920 units, reflecting a sharp pullback in new pipeline activity. Completed units also dropped significantly, down 38.3% year-over-year, indicating fewer new deliveries entering the market.

Similarly, capital market activity within the sector softened, with BTR sales volume totaling about $632 million, a 31.7% annual decline. This reduction is attributed to fewer markets being recorded for sales compared to the previous year. In Q4 2024, Yardi reported only eight active markets, as opposed to 15 in Q4 2025. Nevertheless, according to Yardi, the markets with the highest sales were Phoenix (over $270 million) and West Palm Beach, Fla. (over $180 million).

Market Outlook

Entering 2026, the multifamily housing market is showing signs of stabilization following a demand-driven first half of 2025 and a supply rebalancing in Q4. While absorption weakened significantly in the final quarter, occupancy levels remain historically high, indicating that the slowdown reflects moderation rather than structural decline. However, the return of supply exceeding demand suggests that rent growth may remain uneven, particularly in metros with elevated delivery pipelines. At the same time, strengthening investment volume points to renewed capital market confidence, positioning multifamily as a favored asset class heading into the next cycle. Overall, Q4 2025 reflects a transitional phase as the market adjusts toward a more normalized demand-supply equilibrium.