The U.S. multifamily sector continues to benefit from renting remaining more cost-effective than homeownership, helping sustain renter demand even as leasing activity cools. Absorption turned negative in the fourth quarter after an extended period of exceptionally strong demand, signaling a return to more typical market conditions rather than a weakening in fundamentals. Demand remains strongest in high-growth Sunbelt markets relative to existing inventory, though elevated supply levels continue to weigh on rent performance in some markets. At the same time, differences in market performance continue to widen, making market selection increasingly important for investors.
Lending activity strengthened as debt originations increased year over year and liquidity conditions improved. Investment sales also advanced as investors pursued opportunities across both high-growth Sunbelt and more supply-constrained markets. Meanwhile, construction starts and units under construction continued to decline from peak levels, pointing to easing supply pressure and improving operating fundamentals ahead as deliveries slow in 2026 and beyond.
Key Takeaways:
- Net absorption totaled -40K units in 4Q25, signaling demand normalization after an extended surge.
- Annual demand as a share of inventory declined to 1.8%, still above the long-term average despite slower leasing activity during the second half.
- Multifamily debt originations rose 37% year over year as lending conditions improved.
- Sales volume reached $50.9 billion, up 4.5% year over year as investor activity continued to recover.
- Effective rent growth declined 0.6% year over year, with Class A assets continuing to outperform.
- Units under construction fell 47% from peak levels, pointing to supply moderation and improving fundamentals ahead.
