Higher interest rates continue to challenge multifamily investors. Financing is more expensive, transactions require creativity, and the recovery remains uneven across markets. But beneath those headwinds, the fundamentals are increasingly providing reasons for optimism.
Perhaps the clearest signal is vacancy. The national vacancy rate recently dropped for the first time in four years, and that momentum continued through Q3, with vacancy now 50 basis points lower year over year. Demand is helping drive that improvement. More than 507,000 multifamily units were absorbed over the past 12 months, approximately 70,000 more than were delivered. With absorption now outpacing deliveries, the market is steadily working through the inventory added over the past several years.
Looking ahead, the supply side of the equation is becoming more favorable, with starts falling to their lowest level in a decade. Although some markets have considerably more inventory to work through than others, a shrinking construction pipeline will bring supply and demand into better balance. The substantial cost advantage of renting versus owning in nearly every market should provide additional support for demand by keeping households in the renter pool longer.
To be clear, none of this suggests that today’s challenges have disappeared. Although once again positive, rent growth remains modest, while borrowing costs and higher equity requirements continue to affect investment decisions. Those conditions reinforce the importance of disciplined underwriting and a market-by-market approach that, in many cases, has become a block-by-block exercise. But rates do not necessarily need to return to previous lows for opportunities to emerge. Improving fundamentals are creating a more constructive environment for selective investment.
Investment activity suggests some investors have begun moving ahead of the broader recovery. After falling to $86.7 billion in 2023, multifamily sales volume increased to $106.1 billion in 2024 and $131.2 billion in 2025, even as operating fundamentals remained uneven. Trailing 12-month volume now stands at approximately $122 billion, roughly 35% above its historical average, although activity has leveled off as rates have moved higher. Rather than waiting for rates and every market indicator to normalize, investors continue to find opportunities where the asset, market, and capital structure align.
That distinction is important because the recovery will not look the same everywhere, and understanding where momentum is building will be critical to identifying opportunity.
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Lument’s Fall National Multifamily Market Report takes a deeper look at the demand drivers and momentum shaping individual markets, examining vacancy, absorption, rent growth, construction, transaction activity and other factors influencing multifamily investment opportunities.
