Increased Rent Growth Forecasted in 2025, After Supply Wave Crests

Demand Drivers Leading into 2025

In the first 11 months of 2024, U.S. employment grew 1.6%, adding nearly 2 million jobs. This was about 27% fewer new jobs compared to the same period in 2023. The slowdown in employment was in part due to several devastating hurricanes and tornadoes, as well as numerous employee strikes at various ports and factories across the country. Despite these challenges, the country's Gross Domestic Product (GDP) grew at a steady pace throughout the year, while annual inflation registered at 2.7% in November. Real average hourly earnings in November grew 1.3% year-over-year. RealPage initial employment forecasts indicate that the U.S. economy will generate roughly 1.4 million jobs in 2025, while inflation will continue to inch closer to the Fed's target rate of 2%.

Last year was remarkable not only for advancements in artificial intelligence but also for the multifamily industry, despite facing numerous challenges, including financial and political hurdles. Lower inflation, solid employment rates, higher wages and a more accommodating Federal Reserve all boosted the confidence of thousands of households, leading to increased demand for housing. In 2024 alone, nearly 667,000 apartment units were absorbed, a level that seemed impossible at the beginning of the year. However, slower employment growth coupled with fiscal and monetary policy uncertainties are expected to slow down the demand for new apartments. Our RealPage forecast indicates that demand for new apartments will drop by over 25% in 2025, though it will still represent a decent absorption level.

Subsiding Supply’s Impact to Rents

While less robust than demand, the supply of new apartments had a standout year, with over 588,000 units coming online, and nearly 25% of this supply was delivered in just five metros: Dallas (+35,000 units), Austin (+31,000 units), Phoenix (+26,000 units), Houston (+25,000 units) and Atlanta (+24,000 units). Recent reports on new permits and starts suggest that construction will slow down in the coming quarters. Our RealPage forecast indicates that in 2025, over 470,000 new apartments will come online, led by New York, Phoenix, Dallas and Newark.

On the rent front, effective rents at the national level grew by 0.4% in 2024 (when measured on a trailing four-quarter basis). Among the nation’s 50 largest apartment markets, 22 experienced  rent cuts in 2024, with Austin seeing the most significant decline. Meanwhile, 27 of the top 50 markets saw their rents increase above the national level, with Riverside being the only market to match the national growth rate.

In 2025, rents in most apartment markets are expected to grow at a much faster pace. Our forecast indicates that effective rents will grow at an average annual rate of about 2.5% nationwide. Among the top 50 markets, 44% are expected to post rent change below the national average, while 50% of markets will see above-average rent growth. Only three major markets will see rents grow at a similar pace to the national average, though several others will see growth within 10 basis points of the U.S. average. Austin is likely to continue to lag nationwide. On the other hand, Orlando, Richmond, West Palm Beach and Philadelphia are expected to lead the nation for apartment rent growth, seeing 3.5%-4.0% gains in 2025.

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