The multifamily market is starting to see light at the end of the tunnel as deliveries slow and rental growth is starting to show signs of recovery — albeit slowly.
As multifamily overcomes the supply overhang, rental growth over the quarter reached 0.3%. While relatively flat, it marked the first third-quarter increase in four years. Rents rose 1.4% in the first three quarters, according to Yardi Matrix.
“Fundamentals may stabilize after several years of resource weakness,” according to the Yardi Matrix report. “Improving market breadth, slow supply growth and resilient occupancy suggest that multifamily enters the fourth quarter stronger.”
The strongest year-over-year fundamentals were recorded in the gateway and Midwest markets, led by San Francisco with almost 10% growth and followed by New York City, Chicago, Kansas City and Detroit, which all hovered around 5% growth.
Meanwhile, the Sun Belt market is still struggling with a wave of higher supply but “is becoming less negative” due to slow deliveries, according to the report. Metros like Miami, Atlanta and Los Angeles hovered below 1%, and Denver, Houston and Austin approached negative 3%.
Rents remaining at current levels throughout the year could result in “meaningful improvements from recent years,” according to Yardi Matrix.
Developers completed 318,000 units last year in the third quarter, down 46% from a peak of more than 588,000 units by the end of 2024. The supply gap has narrowed to 13,000 units, the lowest in more than a decade, according to RealPage’s Q3 report.
Although market fundamentals improved, external economic factors dampened the sector’s returns for investors and apartment owners after the 10-year Treasury yield rose above 5%, the highest level since 2022.
Economic volatility can cause refinancing costs to rise and transaction activity to slow, according to Yardi Matrix.