The spring leasing season is underway and on paper, the national apartment market looks decent. Absorption was positive in the first quarter, supply is finally coming off the boil, and effective rents are inching higher. Yet to many owners and lenders who spent the last three years underwriting a sharp rebound once new deliveries rolled over, 2026 so far feels flat.
On a recent episode of his "Rent Roll" podcast, Jay Parsons, housing economist, described the environment as "ho hum" — meaning not bad, but not great and certainly not the clean reset many investors had built into their business plans.
A recovery that looks better in isolation than in context
Parsons' quarterly update opens with a data point that, standing alone, would be reassuring: roughly 90,000 units absorbed in Q1 2026, by his read of major data providers. In a typical year, that would qualify as a solid start to leasing season. The problem is the denominator. The sector is still working through elevated vacancy created by the 2023–2025 supply wave, which produced three of the heaviest delivery years since the mid-1980s.
That overhang means that "pretty good" absorption does not move the needle as much as investors had hoped. Many operators entered 2026, counting on a stronger spring to make visible progress on occupancy and regain pricing power. Parsons is careful not to call Q1 a miss versus base-case expectations, but he draws a line between what the data shows and the "upside scenario" that equity and lenders were implicitly pricing in. The upside, at least for now, has not materialized.
Supply is finally down — but not gone
On the supply side, Parsons notes that Q1 2026 marked one of the lowest completion quarters since 2018, with roughly 75,000 units delivered. That is down more than 50% from the Q3 2024 peak and is the first time in four years that completions have dipped below the 80,000-unit mark. For most markets, that shift is meaningful. The sector has moved from an environment where new product was overwhelming demand to one where supply is "absorbable" again.
But the industry is not coming out of a typical cycle. Unlike the post–Global Financial Crisis period, when development nearly stopped, the current slowdown is more of a step-down than a cliff. Projects started in 2023–2025 are still in lease-up, and the impact of those deliveries is still visible in vacancy and concessions. Parsons emphasizes that the big supply wave is finally in the rear-view mirror but not yet out of the system.
Geographically, the adjustment is not uniform. Sun Belt and Mountain markets that led the late-cycle construction boom are seeing sharper deceleration, but a few metros remain outliers. Parsons flags West Valley submarkets in Phoenix, pockets of Charlotte and parts of Southern California as places where elevated pipelines are taking longer to burn off. In those markets, owners are still competing directly with heavy new supply even as national delivery totals decline, extending the lag between improved starts data and improved street-level performance.
Solid demand, limited pricing power
On the demand side, Parsons rejects the idea that the sector has a fundamental absorption problem. Q1's numbers held up in the face of weak job growth, concerns about AI's labor-market impact, geopolitical shocks and soft consumer confidence. He points to affordability constraints in the for-sale market and favorable demographic drivers as continuing tailwinds, along with the simple fact that fewer renters are exiting to homeownership. Net demand is positive and the renter base continues to expand.
However, that demand is not translating into robust rent growth. Between February and March, effective rents rose about 0.46% nationally, below the long-term March average of roughly 0.62%. The year-over-year story is even more muted: depending on the data set, rent growth is either slightly negative or just barely positive, and has hovered around flat for more than three years.
There are bright spots — the San Francisco Bay Area has posted mid-to-high single-digit gains and markets like Virginia Beach are quietly outperforming on limited supply — but they remain exceptions rather than the rule.
The key constraint is pricing power. Parsons argues that operators, especially in high-supply markets, are still prioritizing "heads in beds." Concessions remain at their highest levels since the early 2010s, with no meaningful pullback between February and March.
He suggests that one of the first clear signs of a true rent-growth recovery will be concession "burn-off" — one month free turning into two weeks, or deeper discounts shrinking at renewal. That dynamic has yet to appear at scale. In fact, some operators may opt to raise asking rents while maintaining concessions to preserve the perception of a deal, a strategy that flatters face rents but leaves net effective growth muted.
Expectations got ahead of the curve
If the data doesn't look terrible, why does 2026 feel so underwhelming to investment committees? One answer lies in how deals were underwritten during the run-up and early stages of the supply wave. Many sponsors and lenders assumed that once starts rolled over and completions fell, the market would snap back toward 2021-style rent growth, vacancies would normalize quickly, concessions would roll off and owners would have room to reprice units more aggressively within a leasing season or two.
The reality Parsons describes is slower and more incremental: modest occupancy gains, modest rent increases and a competitive leasing environment in most of the country. Tenants still hold most of the leverage, with more options and heightened expectations for discounts, especially in high-concession markets.
For business plans that depended on a rapid reset — refinancing on higher income, selling into a firmer cap-rate environment or sweeping through lease-ups at pro forma rents — the current "pretty good" fundamentals fall short.
Parsons does not offer a dramatic turning point. Instead, he frames the path forward as a slog of "two steps forward, one step back" as vacancy gradually moves toward normal and operators slowly rebuild pricing power. For investors, the message is less about crisis than calibration. This past quarter confirmed that the sector is moving in the right direction, just on a timeline that is longer and less forgiving than many had penciled in.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.