Apartment Market Pulse Fall 2025

Apartment Market Pulse Fall 2025

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Rental Housing Moves Toward Balance Amid Softening Economic Indicators

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Weakening Employment and Rising Inflation Cast Clouds Over Economic Outlook

The third quarter of 2025 offered a mixed economic picture with a cooling labor market, deteriorating consumer sentiment and a shift in the Federal Reserve's monetary policy. The numbers for gross domestic product (GDP) are not scheduled for release until the end of October. Based on alternative measures, such as the Atlanta Federal Reserve Bank's "GDPNow" measure, the third quarter figure points to moderately solid economic activity. The bank's annualized estimate for third quarter GDP growth was 3.8% as of October 7, 2025. The number points to a repeat of the second quarter's performance, which was revised upward to 3.8%.

However, the GDP estimate was tempered by employment numbers, which underscored rising concerns from business executives about the resilience of consumers faced with mounting prices. The summer months saw companies trimming both costs and job postings. By the end of August, there were 7.2 million open positions, 400,000 fewer than in the same month in 2024.

Softening corporate demand was also illustrated in the scant 22,000 workers added to payrolls in August, a sharp pullback from the typical monthly average of 150,000 to 200,000. The job gains were mostly concentrated in the health care and social assistance sectors, while sectors like federal government and manufacturing saw losses or little change. Adding to the broad trends, the Bureau of Labor Statistics revised the employment data for the March 2024 through March 2025 period, indicating that the economy added 911,000 fewer jobs than initially estimated.

The unemployment rate ticked up from 4.2% in July to 4.3% in August and maintained that level in September of this year. While historically low, the shift signaled underlying weakness compared to the first half of 2025. Beneath the headline unemployment rate, underlying data indicated deterioration, including a decrease in the employment-to-population ratio, a drop in the percentage of consumers saying jobs were "plentiful" and a modest rise in the number of long-term unemployed. In addition, real average hourly earnings-adjusted for inflation- only slightly increased on a yearly basis because of persistent inflation pressures, despite nominal wage gains.

Inflation Accelerates in the Third Quarter

Speaking of inflation, price growth during the months of July, August and September rebounded from the moderating path seen in the first quarter of 2025. The wide swath of tariffs imposed by the White House as part of its trade negotiations were passed on to consumers through higher retail prices. Both the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) Price Index notched yearly advances.

The CPI rose from 2.7% in July to 2.9% in August compared with the same month in 2024, with the core CPI-which excludes food and energy-posting a 3.1% gain in August. Importantly for real estate, the shelter component of the CPI rose in July and August, driving the rebound in the broader index.

Meanwhile, the PCE Index also showed an increase in its annual rate from July to August 2025, from 2.6% to 2.7%. The core PCE measure, which is the Federal Reserve's preferred measure of inflation, showed a 2.9% year-over-year advance in August. Reflecting the summer months, several goods and services drove price gains, including transportation costs, hotels and restaurants, recreational vehicles, gasoline, health care and housing.

Consumer Sentiment Declines Over Job Worries and Inflation

The University of Michigan Consumer Sentiment Index recorded a marked decline in the third quarter of 2025. The index value dropped from 61.7 in July to 55.1 in September, a 10.7% slide. Consumers pointed to persistent inflation as a main reason for the downbeat sentiment. In addition, Americans who participated in the survey were worried about deteriorating labor market conditions and the potential for rising unemployment during the next year.

Similarly, the Conference Board's Consumer Confidence Index fell for the second consecutive month in September, dropping to its lowest level since April 2025. The index underscored worries about current job availability and business conditions.

Federal Reserve Resorts to Rate Cut Due to Weak Employment

The Federal Reserve (the Fed) made a significant shift in its monetary policy stance at the September meeting. The Federal Open Market Committee (FOMC) cut the funds rate by 25 basis points at the meeting on account of significant downward revisions to the jobs data. This was the first rate cut in nine months, and the Fed characterized it as a "risk management cut" to prevent further economic slowing.

The Fed has been under months of intense political pressure to lower rates. The September decision reflected a compromise within the FOMC, as the policy body seeks to balance its mandate to keep unemployment low and return inflation toward the 2% target. The central bank remains open to further rate cuts depending on incoming data.

Economic Outlook

Headed into the last stretch of the year, the federal government shutdown put a pause on a number of key economic data sources in the first three weeks of October, leaving markets, investors and policymakers dependent on private and alternative insights.

For Americans dealing with rising financial pressures, housing affordability challenges and the coming holiday season, the outlook for jobs remains a critical consideration. The same issue is also front-and-center for the Fedas it looks at the remaining meetings on the calendar and the decision it will take.

For real estate markets, the interplay between jobs, inflation and interest rates will provide the tone of the conversation. Market fundamentals will continue to respond to people's ability to maintain their quality of life through steady employment, wages keeping pace with inflation and the confidence to add some sparkle to the holiday season.

U.S Apartment Market

The apartment market has entered a new phase of balance and renewed momentum after more than two years of supply exceeding demand. Demand has now surpassed supply for four consecutive quarters, signaling a meaningful shift in market fundamentals. Following a period of negative absorption through 2022 and much of 2023, leasing activity began to recover in the second half of 2023 and gained steady traction throughout 2024. By the end of 2024, the market had absorbed more than 662,000 units, its highest pace in nearly three years. In 2025, absorption remained elevated, peaking at an annual pace of nearly 785,000 units in the second quarter before moderating slightly in the third quarter to 637,000 annualized units. This sustained streak of positive absorption, combined with a slowdown in completions, underscores that renter demand has firmly returned.

The demand-supply gap tightened from the previous quarter, and national effective rent growth over the past year has experienced a gradual rebound after an extended plateau, according to RealPage statistics. RealPage recorded year-over-year effective rent growth of 2.0% by the third quarter of 2025, reaching $1,880. CoStar data, on the other hand, indicated moderating pace in rents, with growth slowing from 1.2% YoY in Q1 2025 to 0.6% in Q3 2025.

The recovery in pricing reflects a more competitive leasing environment, where strong absorption and fewer new completions have restored limited pricing power to property owners. The growth, however, remains moderate, suggesting that while the market has regained its footing, it is still operating in a measured, steady pace rather than a rapid upswing.

Occupancy trends underscore a stable market with RealPage data showing national occupancy rising from 94.1% in early 2024 to 95.4% by the third quarter of 2025, its highest level since 2021. CoStar's occupancy series, which typically runs a few percentage points lower due to its broader sample coverage, has held steady at around 91.8% throughout the same period. The steady climb in occupancy during the past year reflects the success of absorption in catching up with the large volume of units delivered in prior years. The combination of firm occupancy and renewed rent growth points to a market that is settling.

At the metro level, rent performance varies significantly, revealing distinct regional stories. Brownsville, Texas, stood out with the highest year-over-year rent growth at 8.7%, a reflection of persistent supply constraints and limited new construction rather than an expansion in absorption. San Francisco saw effective rents climb 6.3% after several years of softness. Smaller Midwestern markets like South Bend, Ind., and Columbia, Mo., also posted impressive gains, supported by local economic stability and constrained supply.

On the other end of the spectrum, several Florida metros such as Naples, Fort Myers and Sarasota are experiencing rent declines ranging from 5.9% to 6.2%. These markets have been weighed down by a surge of new deliveries, rising insurance costs and affordability constraints that have moved landlords toward offering concessions. According to RealPage data, nearly 22% of apartments nationwide were offering concessions as of the third quarter, and the average concession was 6.2%. Boulder, Colo., and Asheville, N.C., have also witnessed modest rent declines amid slower demand growth and elevated operating costs.

U.S Capital Markets

The capital markets tell a similar story of gradual improvement following a subdued 2023. Transaction activity began to strengthen in mid-2024 as investors adjusted to higher borrowing costs and greater pricing clarity. Quarterly multifamily sales volume rose from about $17 billion in the first quarter of 2024 to over $34 billion by the third quarter of 2025. The average price per unit also increased, reaching about $224,000, its highest level since Q2 2022. This rebound in pricing and volume indicates that capital is returning to the sector, though selectively. Investors remain focused on stabilized, income-producing assets in high-growth regions, particularly across the Sun Belt and Midwest, where fundamentals are most supportive. While financing remains more expensive than in previous cycles, the narrowing gap between buyer and seller expectations has restored a sense of normalcy to the investment landscape.

Among the CoStar markets that had at least 10 transactions in Q3 2025, the highest transaction price per unit ranged from $333,000 to about $436,000 in areas such as New York; San Jose, Calif.; Palm Beach, Fla.; San Francisco; Boston; and Portland, Maine. Additionally, the markets with the highest quarterly sales volume, in descending order, were New York, Los Angeles, Seattle, Atlanta, Phoenix and Orlando, with values ranging from about $1.2 billion to $3.7 billion.

U.S Build-to-Rent Market

The national Build-to-Rent (BTR) market revealed a mixed performance in Q3 2025, with both positive and negative year-over-year growth trends. According to Yardi Matrix single-family trend report, national build-to-rent rents averaged $2,211 in the third quarter of 2025, up slightly by just 0.3% from a year earlier.

Occupancy improved to 92.7%, representing an increase of 1 percentage point from the previous year. The markets with the highest occupancy levels in BTR communities were Central New Jersey; Tallahassee, Fla.; Boston; Albuquerque, N.M.; eastern Los Angeles County; and Milwaukee.

On the other hand,development activity has slowed considerably. Units under construction fell by 38% year-over-year, and completed units dropped 11%. Despite these reductions, markets like Phoenix (1,379 units), Dallas (637 units), San Antonio (532 units), Atlanta (518 units) and Savannah, Ga., (354 units) saw the highest levels of completed units.

Total sales volume for the sector experienced a significant year-over-year decline, decreasing by 58.3% to roughly $256 million. This reduction in pipeline activity is attributed to fewer markets showing sales compared to the previous year. In Q3 2025, Yardi reported only 10 active markets, as opposed to 21 in Q3 2024. The markets that registered sales included the suburban Twin Cities (approximately $80 million); Kansas City, Kan.; Kansas City, Mo.; Phoenix; North Central Florida; Fayetteville, Ark.; Triad, N.C.; Des Moines, Iowa; Tampa, Fla.; and Tallahassee (around $14 million).

Market Outlook

Overall, the U.S. multifamily housing market appears to be entering a period of measured stability. After weathering the imbalance of oversupply and softening rents that characterized 2022 and 2023, the sector is once again defined by solid absorption, improving occupancy and cautiously optimistic rent growth. While investors and developers maintain a cautious approach toward the market, key fundamentals are exhibiting robust improvement across multiple areas. As construction pipelines ease in some markets and financing conditions gradually improve, the market is positioned for steady, sustainable performance through the remainder of 2025 and into 2026. The outlook is one of balance rather than exuberance: Steady demand, disciplined supply and a rental housing market that has found its footing once again.