Rents Rising, Homes Elusive: Why Multifamily Still Wins

The gap between owning and renting has never been more striking. With median home prices hitting a record $420,000 and mortgage rates hovering in the high 6% range, average monthly mortgage payments now exceed typical rents by a staggering $1,350. This widening affordability divide is reshaping America's housing landscape in unexpected ways.

Our deep dive into the latest Q2 Multifamily National Report reveals a rental market displaying remarkable resilience despite economic uncertainty. Nearly 147,000 apartments were absorbed nationwide last year, driving vacancy rates down to a two-year low of 5.0 percent across 48 of 50 major metro markets. But perhaps most fascinating is how landlords are approaching pricing: existing tenants face 3.7% rent increases when renewing leases, while new tenants actually benefit from a 1.4% decrease. This unusual dynamic suggests property owners recognize the value of tenant retention in today's market.

The construction pipeline is sending equally interesting signals. Apartment completions hit their lowest quarterly total since Q2 2023, with building permits at their lowest level since 2015. With 40 of 50 top markets projected to see fewer new apartments in 2025, and $206 billion in investment capital sitting on the sidelines, we may be witnessing not just a market cycle but a fundamental shift in housing patterns. Could more Americans become lifelong renters? The implications for consumer spending, savings patterns, and urban development could reshape our economy for decades. Subscribe now to explore more insights on how these housing trends affect your financial future.

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Episode Transcript

Speaker 1 (00:00):
You know it feels like everyone's talking about
the housing market these days.
Interest rates, prices it's alot.

Speaker 2 (00:06):
It really is.

Speaker 1 (00:07):
But one area that seems well, almost unexpectedly
strong is the apartment rentalmarket.
It's showing some realresilience, even with all the
economic shifts happening.

Speaker 2 (00:16):
Absolutely it's holding firm and to really get a
handle on why we've beendigging into the latest numbers,
specifically the Q2 MultifamilyNational Report from Marcus and
Milichap.

Speaker 1 (00:28):
Right that report, so that's our source for this deep
dive.

Speaker 2 (00:31):
Exactly, it gives a pretty comprehensive picture.

Speaker 1 (00:33):
Okay, so our aim today, basically, is to unpack
what this report is telling us.
Whether you're renting,thinking about buying or,
honestly, just trying to makesense of the economy, these
trends matter.

Speaker 2 (00:45):
And we want to go beyond just the data points.
What does it actually mean?
Where might things be heading?

Speaker 1 (00:50):
Yeah, not just dry numbers, let's get into the
insights.
So let's start with the recentpast.
What's the story with apartmentleasing?
Was there much activity?

Speaker 2 (00:58):
Oh yeah, the report highlights really significant
activity over the last year.
We're talking nearly 147,000units absorbed nationally.

Speaker 1 (01:07):
Wow, 147,000.
That's a lot of apartmentsfilled.

Speaker 2 (01:11):
It is, and the direct result was a pretty noticeable
drop in the national vacancyrate.
It fell by 0.9 percentagepoints, 90 basis points, 90
basis points.

Speaker 1 (01:20):
Okay, and was that just in certain hotspots or more
widespread?

Speaker 2 (01:23):
That's the interesting part it was really
broad based.
The report says 48 out of the50 major metro areas actually
saw their vacancy rates decrease48 out of 50.
That's nearly everywhere.
Pretty much.
It pushed the national vacancyrate down to 5.0 percent as of
March 5.0 percent, and how doesthat compare historically?
Well, that's a two year low.

Speaker 1 (01:42):
Yeah.

Speaker 2 (01:45):
And it's also below the long-term average.
So it suggests demand is, youknow, quite solid.

Speaker 1 (01:48):
Okay, solid demand, but you mentioned the broader
economy earlier.
Things like tariffs, potentialpolicy changes, are those
casting a shadow.

Speaker 2 (01:56):
They definitely introduce an element of, let's
say, uncertainty.
That's something the reportacknowledges.
These things could impacthousehold formation, maybe
dampen rental demand a bit aspeople react.

Speaker 1 (02:09):
Right.

Speaker 2 (02:09):
Potential headwinds, yeah, but the key point the
report makes is that themultifamily sector is facing
this from a well pretty strongstarting position.

Speaker 1 (02:18):
Because of that leasing activity we just talked
about.

Speaker 2 (02:20):
Exactly that solid footing helps.
Plus there's this expectedpullback in new construction
coming.

Speaker 1 (02:26):
Ah, okay, supply slowing down.

Speaker 2 (02:28):
Potentially, and if you combine that with continued
job creation, especially insectors where renters often work
, it could help keep supply anddemand reasonably balanced.

Speaker 1 (02:38):
Makes sense.
Okay, let's pivot to somethinghuge Buying a house.
It's tough out there.
How's that playing into therental market?

Speaker 2 (02:50):
Oh, it's a massive factor.
The report really emphasizesthis.
The difficulty and cost ofbuying a home are, frankly,
keeping more people renting forlonger.

Speaker 1 (02:53):
Can you put some numbers on that difficulty?

Speaker 2 (02:55):
Sure.
So the median price for asingle family home hit nearly
$420,000 in March.
That's a record $420,000.
Wow, and that's up 4% from theyear before.
Then you add in mortgage rates,which were, you know, up in the
high 6% range in late April.

Speaker 1 (03:13):
High sixes Ouch.
So what does that mean formonthly payments compared to
rent?

Speaker 2 (03:17):
That's where it gets really stark.
The report calculates the gapbetween a typical mortgage
payment and the average rent isnow around $3,350 per month
$1,350 more per month to own.
On average, yes, and that gapis historically very large.
It makes renting look wellsignificantly more affordable
for a lot of people right now.

Speaker 1 (03:37):
Yeah, no kidding.
So are we seeing peoplechoosing to stay put in their
rentals then we are.

Speaker 2 (03:44):
The data shows rent or retention is definitely up
the renewal conversion rate.
So the percentage of tenantsrenewing their lease hit 55.3%
in the first quarter 55.3%.

Speaker 1 (03:54):
How does that compare ?

Speaker 2 (03:54):
That's a jump of 1.6 percentage points, 160 basis
points, compared to the sametime last year.

Speaker 1 (04:00):
Okay, so more people are sticking around.
Is that across the board or inspecific types of apartments?

Speaker 2 (04:05):
It seems to be happening across all property
classes, which is interesting.
But Class C propertiestypically the more affordable
older stock.
They actually led the way witha renewal rate of 58.7%.

Speaker 1 (04:18):
So even in the more budget-friendly options, people
are renewing.

Speaker 2 (04:22):
Exactly Suggest.
Folks are prioritizingstability, maybe avoiding the
costs and hassle of moving,especially with ownership so far
out of reach.

Speaker 1 (04:30):
No, this is where it gets really critical, I think.
How do these renewals affectrents?

Speaker 2 (04:34):
Are landlords arising rents more for renewals and
this is a key aha moment in thereport.
Renewals are the main engine ofrent growth right now.

Speaker 1 (04:42):
Really.

Speaker 2 (04:43):
Yeah, tenants renewing their leases are seeing
an average annual rent increaseof 3.7%.
But guess what?
Rents for new tenants actuallydrop by 1.4% on average.

Speaker 1 (04:53):
Whoa Okay.
So it's cheaper to sign a newlease than to renew an existing
one, on average.

Speaker 2 (04:58):
Well, the change is negative for new leases,
positive for renewals.
Landlords are finding moresuccess, it seems, in raising
rents on existing tenants whowant to stay, rather than trying
to push rents higher for vacantunits in the current market

(05:21):
that's fascinating.

Speaker 1 (05:22):
So the headline rent numbers might look softer, but
if you're staying put, you'relikely paying more.
That seems to be the dynamic.
Okay, let's talk supply.
Then what's happening with newapartment construction?
Are we still building a lot?
The numbers for Q1 2025 showabout 116,000 units completed.
Now that's still above thelong-term average, but it's
actually the lowest quarterlynumber since the second quarter
of 2023.
So it points towards a downwardtrend starting.

Speaker 2 (05:38):
A slowdown in deliveries.
Are we expecting that tocontinue?

Speaker 1 (05:41):
The projection is yes .
The report anticipates that 40out of the top 50 markets will
actually see fewer new apartmentopenings in 2025 than they did
in 2024.

Speaker 2 (05:51):
40 out of 50.
So most major markets areexpecting less new supply next
year.
What about areas like theSunbelt that saw huge building
booms?

Speaker 1 (05:59):
Yeah, good question.
The Sun Belt, especially Texas,definitely have very high
completion numbers.
Recently the four big Texasmarkets alone were like 15% of
the national total this pastyear 15%, just from Texas, wow.
But even there we're seeingsigns of a slowdown now.

Speaker 2 (06:15):
Oh interesting, what kind of signs.

Speaker 1 (06:17):
The report specifically notes a significant
drop in permit activity, soapplications to build in Texas
and the southeast overall duringthe first quarter.

Speaker 2 (06:26):
Fewer permits being pulled.

Speaker 1 (06:27):
Exactly and nationally.
The number of multifamilypermits issued in Q1 2025 was
the lowest quarterly total sinceWell, since at least 2015.

Speaker 2 (06:38):
Since 2015.
That's a pretty strong signal.

Speaker 1 (06:40):
It is, and you have to remember there's a lag right.

Speaker 2 (06:42):
Right Between permits and actual finished buildings.
How long is that typically?

Speaker 1 (06:46):
Usually around eight to ten quarters, so two to two
and a half years roughly.

Speaker 2 (06:50):
Okay, so this drop in permits now means we'll likely
see fewer new apartmentsactually opening up down the
road a couple of years from now.

Speaker 1 (06:58):
That's the implication.
Yes, it points to a tightersupply pipeline in the medium
term.

Speaker 2 (07:03):
Got it Okay.
Shifting gears again.
Let's talk investment.
Where's the money going in themultifamily space?

Speaker 1 (07:09):
Well, the report notes a bit of a slowdown in
actual deal volume, the numberof sales From January to March.
That came after three quarterswhere activity had been picking
up.

Speaker 2 (07:19):
So a pause in transactions.

Speaker 1 (07:21):
A bit of one, yeah, but what's still very active is
the private investor segment.
Deals under $5 million made upabout three quarters of all
sales.

Speaker 2 (07:30):
Three quarters were smaller deals.
Why do you think multifamily isstill attractive to those kinds
of investors right now?

Speaker 1 (07:40):
The thinking is, in this kind of uncertain economic
climate, maybe with policyshifts and so on, multifamily
real estate feels relativelystable.
You know, it's a tangible asset, generates income.
Seems like a safer bet for someprivate capital.

Speaker 2 (07:49):
A bit of a safe harbor perhaps.
What about pricing and returns?

Speaker 1 (07:52):
Over the year ending in March, the average stabilized
price per unit held around$200,000.
Okay, and the average cap ratethe return investors expect
based on income hit 6.0%.
That's actually the highestit's been since 2013.

Speaker 2 (08:06):
6.0% cap rate, highest since 2013.
That suggests returns arebecoming potentially more
attractive for buyers, maybereflecting higher borrowing
costs or perceived risk.

Speaker 1 (08:16):
Could be a mix of factors.
Yeah, it reflects the currentmarket dynamics and there's
definitely money waiting to beinvested.

Speaker 2 (08:22):
How much are we talking about?

Speaker 1 (08:23):
A lot.
The report mentions dry powder,that's capital committed to
funds but not yet spent,targeting North American real
estate.
In March it was $206 billion$206 billion, wow yeah.
And that was actually up $8billion just from the end of
2024.
So the money's there.

Speaker 2 (08:42):
But it's sitting on the sidelines mostly why?

Speaker 1 (08:45):
Likely that same economic uncertainty we talked
about.
It's making some largerinvestors hesitate.
Maybe wait for a clearerpicture.

Speaker 2 (08:52):
Makes sense.

Speaker 1 (08:53):
That said, the report does note that some bigger
deals institutional level stuffover $20 million still happened
in Q1.
Institutional level stuff over$20 million still happened in Q1
.
So it's not completely frozen.
It suggests some larger playersmight deploy more capital later
in the year if things stabilize.

Speaker 2 (09:07):
Okay, interesting, so let's try and pull this all
together.
After diving into this report,what's the main headline for the
multifamily market?

Speaker 1 (09:13):
I think the main takeaway is resilience.
The market's proving quiteresilient, even as it deals with
, you know, a pretty dynamiceconomic environment.
And what's driving thatresilience?
Primarily, it seems to boildown to strong underlying demand
, fueled partly by demographics,but significantly by just how
expensive and difficult it'sbecome to buy a home.

(09:34):
That's keeping rental demandhigh.

Speaker 2 (09:37):
Right, the homeownership barrier is key.
So those are the strengths.
What are the main things weneed to keep an eye on going
forward?

Speaker 1 (09:43):
Definitely need to watch the supply side, how that
construction slowdown plays out,also any shifts in economic
policy, how they affect rentersand the economy generally and,
of course, what happens in thecapital markets.
You know interest rates,investment flows.

Speaker 2 (09:57):
All those moving parts.

Speaker 1 (09:58):
Exactly.
So maybe a final thought foryou, the listener, to chew on.

Speaker 2 (10:02):
Okay.

Speaker 1 (10:03):
Given this widening gap between renting and owning
and how it's clearly boostingthe rental market, could this be
more than just a cycle?
Might we be seeing afundamental, longer-term shift
in how people approach housing,more people becoming renters for
longer, maybe for life?

Speaker 2 (10:18):
A structural shift.
Yeah, becoming renters forlonger, maybe for life.

Speaker 1 (10:20):
A structural shift, yeah, and if so, what kind of
unexpected ripple effects couldthat have on, you know, consumer
spending savings?
How are cities even develop?

Speaker 2 (10:31):
That's a really interesting question, definitely
food for thought about thefuture shape of the housing
market and maybe even theeconomy.

Speaker 1 (10:35):
Something to ponder.
Thanks for digging into thiswith us today.