Household formation is slowing sharply even as job growth holds up, undercutting apartment absorption and reinforcing structural constraints that federal housing initiatives are unlikely to resolve quickly, according to a new analysis by Marcus & Millichap.
Slowing Formation, Softer Absorption
Marcus & Millichap reports that household formation is on track to run about 40 percent below its annual average since 2000 this year, despite the strongest quarterly job gains since late 2024. Trailing 12‑month hiring still ranks among the weakest non‑recessionary periods on record, and slower net international migration is further dampening new household creation, a key driver of rental housing demand.
Against that backdrop, apartment demand has softened, with net absorption exceeding 90,000 units in the first quarter, but nearly 10,000 units were relinquished on net in the second half of 2025. Even so, easing development is helping to cap vacancy drift, with the national rate at 5.1 percent in March, slightly below its long‑term average.
For investors, the disconnect between a still‑growing labor market and weakening household formation suggests that traditional employment-based demand proxies may be less reliable for near‑term underwriting. The Marcus & Millichap analysis implies that capital targeting rent growth will need to differentiate between markets where structural drivers of formation remain intact and those where demographic and migration shifts are eroding the pipeline of new renters.
Rent Growth Hinges on Scarcity
The report finds that rent growth has increasingly bifurcated between high‑supply Sun Belt metros and already tight coastal and Midwest markets. Sun Belt markets such as Phoenix, Jacksonville, Austin and Salt Lake City posted some of the strongest net absorption as a share of existing stock in the first quarter, yet they have not seen meaningful vacancy compression. These same markets rank among those with the largest annual inventory gains, which is muting or even reversing rent growth despite solid leasing.
By contrast, markets that entered the year with already low vacancy — including San Francisco, San Jose, Chicago, Reno, Detroit and Milwaukee, where vacancy is in the three to four percent range — continued to tighten and generated some of the strongest rent growth nationally.
That out-performance is exacerbating affordability pressure in select, supply‑constrained metros, reinforcing the premium placed on existing stock in high‑barrier locations. Taken together with weaker household formation, the pattern underscores a central theme of the Marcus & Millichap analysis: in the current cycle, scarcity rather than broad‑based demand growth is doing most of the work for owners on the revenue side.
For‑Sale Market Stays Stuck
The same forces weighing on household formation are evident in the for‑sale market, where lower financing costs have not translated into materially higher activity. Existing home sales in March were roughly in line with early 2025 levels and the median sale price was also largely unchanged, even though 30‑year mortgage rates were nearly 80 basis points lower.
Marcus & Millichap attributes this to a lingering anchoring effect from the sub‑3 percent mortgage environment of 2021, which is slowing buyer and seller willingness to transact at today's higher rate plateau.
Over time, the firm expects activity to improve as buyer expectations adjust to the new rate regime, but for now, the lack of response keeps both for‑sale turnover and move‑up activity constrained. For multifamily investors, that stasis cuts both ways: it helps retain renters who might otherwise exit to homeownership, but it also limits the churn that can feed new household formation and downstream demand for apartments.
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