NAA - National Apartment Association
11/05/2026 | Press release | Distributed by Public on 11/05/2026 13:23
Apartment Market Pulse Q3 2026
Solid GDP Numbers Mask Rising Inflationary Pressures
Economic activity continued expanding during the third quarter of this year, but September ended with an uncomfortable mix of uneven hiring, wage gains falling behind inflation, tighter monetary policy and weakening consumer confidence. Housing faced increasing pressure as mortgage rates climbed above 7% and construction slowed.
The September update to gross domestic product (GDP) posted upward revisions to both the first and second quarter figures, indicating that economic output advanced faster than initially estimated. Real GDP advanced at a 2.2% annualized pace during the second quarter, revised up from the initial 1.5% estimate. Consumer spending remained the primary driver of economic output. With official GDP numbers not available until October 29, the Atlanta Federal Reserve's GDPNow forecasting model expects economic activity to post an annualized increase of 3.5% in the third quarter.
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Real Gross Domestic Product
The topline number, however, obscures mounting street-level pressures. Inflation regained momentum as the third quarter progressed. The monthly Consumer Price Index accelerated from a 0.1% monthly gain in July to 0.4% in August and 0.6% in September. Annualized, the figures showed that headline inflation rose from 3.3% in July to 3.7% in September. Energy was the principal driver of price gains, with the index up 20.4% from a year earlier, including a 34.2% increase in gasoline. Concerningly, the price of diesel shot up to over $6 per gallon, pushing the cost of transporting goods higher and leading to higher prices on retail shelves.
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Inflation Metrics
Employment Continues in Low-Hire, Low-Fire Mode
Hiring was both volatile and subdued in the third quarter, with revised payroll estimates showing a 10,000-job loss in July, followed by 133,000 jobs added in August and a preliminary 29,000 increase in September. In aggregate, the figures point to about 152,000 net new jobs during the quarter, or about 51,000 per month, well-below a healthy rate. Notably, the September report saw numbers for July and August revised downward by a combined 60,000 jobs.
Looking at the January through September 2026 period, the economy added 612,000 net new jobs, an improvement over last year's lackluster figures. However, job growth is less than half of what was witnessed in 2024, when employers added 1.46 million new people to payrolls.
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Payroll Employment Total Nonfarm, Changing from Prior Period
Despite weak job growth, unemployment remained relatively stable, ending September at 4.2%, within the 4.1% to 4.3% range since March. The labor-force participation rate has been on a decline since the start of this year and reached 61.8% in September. For perspective, the share of people in the labor force was 63.3% in January 2020, before the start of the pandemic.
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Labor Force Participation Rate
Lagging Wage Growth Leads to Loss in Consumers' Purchasing Power
Employment figures describe a labor market generating relatively few new opportunities but maintaining a low level of unemployment. At the same time, the low churn is keeping a lid on wage growth.
Average hourly earnings reached $37.81 in September, increasing 0.1% for the month and 3.0% over the year. The numbers seem healthy at face value; however, accounting for the 3.7% increase in consumer prices during the month highlights the loss in purchasing power. Adjusted for inflation, average hourly earnings fell 0.7% year over year and 0.5% in September alone. While consumers may see larger nominal paychecks, they can tell that their dollars pay for fewer items in the checkout lanes.
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Average Hourly Earnings of All Employees
Higher Financing Costs Weaken Housing Demand and Construction
The loss of purchasing power was even more starkly visible in the for-sale housing sector, where higher home prices were compounded by surging interest rates. The Freddie Mac 30-year fixed rate rose from 6.43% at the start of July to 7.28% on the first day of October.
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Interest Rate
Mortgage rates followed the upward trajectory of the 10-year Treasury, which rose rapidly as a global bond selloff signaled investors' concern that inflation is not only rebounding but likely to remain elevated for a longer period. Capital markets have seen the combination of record-high federal government debt, ongoing tariffs and trade restrictions, and the wars in Ukraine and Iran are a combustible mix that fuels inflation and provides a growing number of downside risks to the economic outlook.
Not surprisingly, transactions of homes reached recessionary levels. Sales of existing homes dropped from an annualized pace of 4.06 million in July to 3.99 million in September. While sales picked up from the prior month in September, they remained below last year's level.
Importantly for buyers, the median sale price was $417,500, up 1.3% year over year. When paired with a 7.28% mortgage rate, it yields a monthly payment of more than $2,800. At last year's price and lower mortgage rate, the same payment was $2,600. For many buyers whose monthly paychecks are stagnating, the increase translates into postponed or abandoned home searches.
Interestingly, as more than 40% of home builders slashed prices in the third quarter, the median price of a new home dropped below that of an existing one, reaching $393,700. Spurred by price cuts and builder incentives, including mortgage rate buydowns, sales of new homes saw a monthly uptick in August.
However, the number of buyers who can make the financing math work is shrinking, as evidenced by the falling sentiment of homebuilders. The NAHB Housing Market Index, a monthly measure of builder sentiment, dropped to the lowest value in 14 years in October, on par with the tail end of the 2008 Great Financial Crisis and housing crash. Builders reported a sharp decline in the traffic of prospective buyers, a clear indication that high mortgage rates are thinning the pool of buyers.
Construction also weakened. September housing starts were estimated at 1.22 million annualized units, down 5.2% from August and 7.4% year over year. Permits were down 3.0% year over year, and completions were 14.0% lower. While overall figures point to a market headed for hibernation, they hide a few nuances. Permits for multifamily buildings improved in September from the prior month, as did the number of completed properties, a sign that in some markets, builders see opportunities in stronger local conditions.
For rental housing, the implications were mixed. Barriers to homeownership could keep some households renting longer, while weaker real wage growth constrained their ability to absorb higher housing costs, including rents. Slower construction also raised concerns about future supply.
Consumer Sentiment Deteriorates Despite Continued Spending
With financial pressure mounting, consumers became more pessimistic during the quarter. The Conference Board's Consumer Confidence Index declined for three consecutive months, reaching 81.9 in September, down from 88.6 in August. Its Expectations Index fell to 63.6, reflecting a weaker outlook for business conditions, employment and income.
The University of Michigan's sentiment index ended September at 48.1, a historically low reading. Year-ahead inflation expectations stood at 4.6%, well above current readings, while longer-run expectations were 3.4%. The contrast between resilient spending and depressed sentiment was a defining feature of the quarter and a signal of the current K-shaped economy.
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The Federal Reserve Pivots to Tightening Monetary Policy
The Federal Reserve held its target range steady at 3.50% to 3.75% on July 29, but three voting members dissented in favor of a quarter-point increase at the meeting. That division foreshadowed September's policy shift. Spurred by data highlighting a resilient economy and level job market, the Fed's rate-setting committee voted unanimously to raise the federal funds target range by 25 basis points to 3.75% to 4.00% at the September meeting, its first increase since July 2023. In addition, updated projections pointed toward the possibility of another increase before the end of the year.
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Federal Funds Effective Rates
Economic Outlook
The third quarter highlighted continued economic resilience but diminishing household financial wiggle room. Spending held up and unemployment stayed relatively low, yet hiring remained weak, inflation eroded wage gains and the Fed returned to rate increases. For housing, the combination of expensive financing and constrained purchasing power weakened sales and construction, while reinforcing the importance of rental options and the need for additional attainable supply.
U.S. Apartment Fundamentals: Demand & Supply
The U.S. apartment market moved closer to balance in Q3 2026 as demand improved from the previous quarter and new supply continued to moderate. According to data from RealPage, annual absorption reached about 305,000 units, up 14.0% from Q2 but down 51.3% year-over-year. Annual completions declined to about 318,000 units, down 5.3% quarter-over-quarter and 32.2% from a year ago.
Although supply continued to outpace demand, the gap narrowed considerably. Completions exceeded absorption by approximately 13,200 units, compared with a gap of nearly 68,500 units in Q2 and roughly 62,600 units in Q1. This marks a notable shift from earlier in the year as slowing deliveries and improved quarterly demand bring the market closer to equilibrium.
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Demand vs. New Supply
National Rent Trends
National rent growth strengthened in Q3 2026 as apartment fundamentals continued to stabilize. According to Realpage, the national average effective rent reached $1,915, with annual rent growth accelerating to 1.9%, up from 1.3% in Q2.
CoStar data showed a similar improvement. Annual effective rent growth increased to 0.8% in Q3, up from flat growth in Q2 and -0.7% in Q1. This marked CoStar's first positive year-over-year reading since Q1 2025, following five consecutive quarters of flat or declining annual rent growth. While differences in property coverage and methodology result in different growth rates between the two sources, both point to strengthening rent conditions through Q3.
Rent performance, however, remained uneven across markets. Northern California continued to stand out among the strongest-performing areas, while several Southeast and Sun Belt markets continued to record rent declines, highlighting the continued variation in local supply and demand conditions.
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Rental Rates
Occupancy Trends
National occupancy remained resilient in Q3 2026, reinforcing signs of stabilization in apartment fundamentals. According to Realpage, occupancy reached 95.4%, down just 10 basis points from Q2 and unchanged year-over-year. Despite the slight quarterly decline, occupancy remained 50 basis points above its Q1 2026 level, when it stood at 94.9%.
CoStar data showed a more consistent upward trend during the year. Occupancy increased to 92.1% in Q3, up 20 basis points from Q2 and 40 basis points year-over-year. This represented the fourth consecutive quarterly increase in CoStar's occupancy measure since Q4 2025.
National occupancy remained resilient despite elevated deliveries. RealPage reported occupancy increased to 95.5% in Q2 2026, while CoStar reported occupancy increased to 91.8% - both datasets indicate stabilization, reflecting healthy market conditions. Steady occupancy suggests renter demand continues to absorb available inventory even as leasing activity has moderated. Combined with slowing construction, occupancy should remain relatively stable unless broader economic conditions weaken materially.
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Occupancy Rates
Metro-Level Performance
Metro-level rent performance remained highly uneven in Q3 2026. Northern California continued to lead rent growth, with San Francisco recording a 14.2% year-over-year increase in effective rents, followed by San Jose, Calif., at 10.1% and the East Bay just to the north at 7.7%. Boise, Idaho (7.4%), Reno, Nev. (7.0%) and Norfolk, Va. (6.2%) also ranked among the strongest-performing markets.
At the other end of the spectrum, rent declines were concentrated primarily across Southeastern markets. Savannah, Ga., and Asheville, N.C., recorded the largest declines, both at -6.9%, followed by Fort Myers (-4.6%) and Sarasota (-3.7%) in Florida and Charlotte, N.C. (-3.6%). San Antonio also remained among the weakest-performing markets, with rents declining 3.4% year-over-year.
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U.S. Capital Markets
Multifamily housing investment activity gained momentum in Q3 2026, although transaction volume remained below annual levels. According to CoStar, quarterly sales volume reached $32.9 billion, increasing 30.8% from Q2 but declining 10.5% year-over-year. Average sales price also strengthened, reaching $227,675 per unit, up 12.3% quarter-over-quarter and 4.9% year-over-year. The increase in quarterly transaction volume and higher pricing suggests improving investment activity following a subdued first half of the year, although the year-over-year decline in sales volume suggests the recovery remains uneven.
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Quarterly Sales Volume vs. Average Price Per Unit
As of Q3 2026, CoStar markets with the highest transaction prices per unit ranged from roughly $345,000 to $527,000 and included San Jose, San Diego, San Francisco, Orange County, Seattle and Boise. Markets with the highest quarterly sales volume were San Jose, Los Angeles, Washington, D.C., New York, Seattle and Chicago, with volumes ranging from $1.8 billion to over $2.3 billion.
U.S. Build-to-Rent Market
The single-family build-to-rent (BTR) market continued to show resilient operating fundamentals in Q3 2026, even as development and investment activity slowed. Average effective rent reached $2,270, up 1.4% year-over-year, while occupancy increased 1.5 percentage points to 93.2%. Meanwhile, the development pipeline continued to contract, with 61,208 units under construction, down 18.5% year-over-year, and 7,882 completed units, down 40.2%. Investment activity also remained subdued, with quarterly sales volume falling 51.5% year-over-year to approximately $180 million. Taken together, the data show strengthening performance among existing BTR communities alongside a considerable pullback in new development and transaction activity.
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Build to Rent Trends
Despite this past quarter's annual reductions, markets like Phoenix (1,653 units), North Dallas (445 units) and West Houston (380 units) saw the highest levels of completed units during the quarter. On the other hand, markets with the highest BTR units under construction were Phoenix (4,511 units), suburban Atlanta (3,818 units), Tampa, Fla. (2,438 units), Fort Worth, Texas (2,320 units) and Orlando, Fla. (2,190 units).
Market Outlook
The apartment market enters the final quarter of 2026 showing signs of greater balance. Demand improved from earlier in the year, while the gap between annual absorption and completions narrowed considerably in Q3 as the pace of new supply moderated. At the same time, national rent growth strengthened and occupancy remained relatively stable, suggesting that operating fundamentals are gradually improving even as market performance remains uneven across metros.
The single-family build-to-rent market reflects a similar dynamic. Rent and occupancy improved year-over-year in Q3, while units under construction and completions declined, signaling a continued pullback in new development. If these trends persist, a slower pace of new supply could provide additional room for existing apartment and BTR inventory to be absorbed. However, weaker construction activity also points to fewer units entering the pipeline, while elevated borrowing costs continue to constrain development and investment activity. Overall, the market appears to be moving toward a healthier supply-demand balance, but the pace and strength of that adjustment will continue to vary considerably across markets.
About the Authors
George Ratiu
George Ratiu
Vice President of Research, NAA
George Ratiu is Vice President of Research at the National Apartment Association (NAA), leading the organization's economic, housing market, and policy research. His work delivers insight for rental housing providers, policymakers and industry stakeholders on macroeconomic conditions and structural trends shaping the U.S. rental housing sector.
Eri Bajomo
Eri Bajomo
Manager of Industry Research, NAA
Eri Bajomo is Manager of Industry Research at the National Apartment Association (NAA), where she leads market intelligence and economic research focused on the U.S. rental housing industry. Her work examines the economic, operational and market forces shaping housing performance across multifamily, single-family rental, and other housing segments, translating complex…
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