Meanwhile, household formation remains strong, with 1.5 million new households formed last year and 8.6 million households formed during the past five years. Real wage growth has remained on an upward trajectory since late 2022. Consumers expect rents to rise sharply by an average of 10.9% year-over-year over the next 12 months, according to the Federal Reserve Bank of New York’s consumer expectations survey.

Multifamily demand outpaced supply over the past 12 months by 131,151 units, even with record-high deliveries. The market absorbed 707,811 units during the past year, more than 3.5 times the long-term average. For the quarter, the market absorbed 34,411 units, an all-time first-quarter high. Sustained demand coupled with a projected slowdown in supply should position the multifamily market for continued positive momentum, said Newmark.

Pittsburgh led the nation in demand relative to supply by 2.5 times over the trailing 12 months. Other Midwest markets, including Detroit, St. Louis, Chicago, Kansas City and Cleveland, were the top-performing markets.

National multifamily vacancy declined to 5% during the first quarter from its peak one year earlier and now sits 50 bps below the long-term average, signaling tightening market conditions. All of the nation’s top 50 markets experienced a decline in vacancy during the first quarter, said Newmark.

After 18 months of muted rent growth, rents are beginning to accelerate and are expected to continue rising through 2025. Of note, insurance costs edged down by 0.2% during the first quarter, marking the first annual decline since the third quarter of 2018. Newmark said this is a result of premiums stabilizing after several years of sharp increases.

Debt origination activity gained momentum during the first quarter, with borrowers benefiting from lower rates, stronger conviction in fundamentals as construction declined and pent-up momentum from the second half of 2024. Investment sales volume reached $30 billion during the first quarter, a 35.5% year-over-year increase. Over the trailing 12 months, sales totaled nearly $158 billion, which signals investor confidence in the multifamily sector.

“Private fund vehicles targeting North American commercial real estate and launched between 2022 and 2024 have amassed $274.5 billion in assets under management, with $78.5 billion deployed,” said the report. “While deal volume has remained limited since the FOMC began raising rates in March 2022, many expect significant dry powder – especially from recent fund vintages – to drive increased deal activity in 2025.”