Apartment Market Pulse Summer 2025

Macroeconomic Environment: GDP Rebounds in the Second Quarter as Imports Drop 

Economic activity in the second quarter of 2025 rebounded from the first quarter’s decline. Real gross domestic product (GDP) notched a 3.0% annualized rate gain, boosted by an unusual combination of moderate growth in consumer spending and a sharp drop in imports. Because imports make a negative contribution in the calculation of GDP, the 30.3% pullback in the volume of goods brought into the United States during the second quarter resulted in a positive GDP change. 

The quarter coincided with the broad imposition of tariffs by the White House, initiated on April 2 as a tactic to renegotiate international trade agreements. For many companies, the uncertainties brought by these tariffs led to a pause in inbound shipments, particularly for nondurable consumer goods. Similarly, American companies saw a drop in exports to trading partners.

Consumer spending picked up during the quarter to the tune of a 1.4% annualized gain, as warmer months encouraged people to travel, vacation and remodel their homes. The data was echoed in a separate U.S. Census Bureau report on retail sales. Total sales during April through June 2025 rose 4.1% compared with the same period in 2024.

However, the business sector highlighted a more pessimistic mood, as nonresidential investments slid into negative territory. Companies signaled concern about the impact of tariffs on prices consumers could pay, as well as the overall direction of inflation.

Inflation and Monetary Response: Fed Maintains Rate Steady, Wary of Price Gains

Prices continued rising in the second quarter of 2025, adding financial pressures to consumers’ monthly budgets. Americans paid more for a wide range of goods and services, including health care, housing, gasoline, food and beverages, clothing and furnishings.  

The Consumer Price Index, measuring change in prices for urban dwellers, accelerated from a 2.3% annual gain in April to a 2.7% increase in June. Similarly, the Personal Consumption Expenditures Price Index picked up speed from a 2.2% increase in April to a 2.6% jump in June.

In response to upward price pressures and economic expansion, the Federal Reserve maintained a steady approach in its monetary policy. The rate-setting body, the Federal Open Markets Committee, kept the funds rate unchanged at its meetings in May, June and July. In addition, the central bank continued to let the assets on its balance sheet roll off at maturity, in effect slowly removing the quantitative support it put in place during the pandemic years.

Economic Impact: Employment Notches Noticeable Pullback 

Labor markets continued expanding in the second quarter of the year; however, with employers more cautious about the outlook, the pace of hiring notched a noticeable pullback from a year ago. In the second quarter of 2025, companies added 191,000 new positions to their payroll, bringing the total for the first six months to 524,000, a sharp 47% decline from the same period last year. The unemployment rate moved from 4.2% in April to 4.1% in June. 

Notably, these data were revised downward in the August 1 release, highlighting that employment trends are softening as we move into the third quarter. In addition, federal government job cuts are starting to show up more prominently in the data, with employment in federal ranks down by 84,000 jobs since January. The effect of the job cuts is likely to rise further, considering that there are tens of thousands of federal workers on deferred resignation until September. 

The number of open positions, which has been declining for the past three years, moved sideways in the second quarter. There were 7.44 million advertised positions in July 2025. As the employment market normalizes, many job seekers are reporting a longer interview process and more intense competition. The signs are pointing to a softening jobs market, which is likely to start weighing more heavily on consumers in the months ahead.

Consumer Confidence: Inflation Takes a Toll

Consumer confidence, which experienced a decline in the first three months of 2025, stabilized in the second quarter. The Conference Board's Consumer Confidence Index and the University of Michigan Consumer Sentiment Index showed moderate upswings from May to July. Consumers indicated concern over tariffs and rising prices, and they remained wary of the outlook for employment.  

Economic Outlook: Balancing Amid Uncertainty

As we progress through the second half of the year, the economy remains poised for moderate expansion. With trade agreements between the White House and international partners being concluded, companies are navigating through uncertainty with slightly more confidence in the road ahead, which should translate into more clarity on prices. This is important as we approach the last quarter of the year and the traditional holiday season, which is key to the health of many retailers across the country.

For now, prices continue to rise, leading to higher grocery bills, insurance premiums, utilities and housing costs. The inflationary pressures will keep the Federal Reserve on a cautious tightening footing, watching incoming data and not hurrying into a rate cut.

For real estate markets, the health of the job market and households’ finances will remain key. With consumer debt near record levels, many Americans are nearing their ability to weather further price hikes. The silver lining is that the cost of rental housing has been moderating following the strong influx of new apartment units and single-family homes during the past few years

U.S. Apartment Market  

The multifamily sector sustained strong momentum in Q2 2025, as annual absorption remained elevated following the pivotal shift in Q4 2024, when demand first outpaced supply. According to RealPage, annual absorptions reached nearly 800,000 units, a more than twofold increase year-over-year and a 10.6% uptick from the previous quarter. This surge reflects improving household formation trends, stronger renter sentiment and a rebound in leasing activity across several metros.

However, annual completions have declined for two consecutive quarters, highlighting the effects of tightening credit conditions and increasing difficulty in securing construction financing. Despite the dip in quarter-over-quarter supply (-7%), year-over-year completions remain up nearly 5%. With new supply trailing demand, the market recorded an estimated shortfall of approximately 250,000 units in Q2. This is now the second consecutive quarter in which annual multifamily demand has exceeded new completions, a trend that could intensify if the development pipeline continues to shrink.

As economic uncertainty grows, including the impact of reciprocal tariffs and higher capital costs, the slowdown in starts may place further upward pressure on rents. Without a strong pipeline of new supply, especially in high-growth regions, operators may gain more pricing power, though this could also reignite affordability concerns.

National effective rent reached $1,869 at the close of Q2 2025, marking a 2.1% increase year-over-year, according to RealPage. Quarter-over-quarter, rents rose by 2%, signaling renewed pricing strength after a more moderate growth period in 2024. CoStar data paints a slightly different picture, registering a 1% rent increase over the same quarter, a pace consistent with Q2 2024, suggesting stabilization in rent growth across many markets.

Occupancy trends continue to diverge slightly between data providers. RealPage reported a national occupancy rate of 95.7%, the highest level since Q3 2022 and a 70 basis point improvement from the previous quarter: An indicator of tightening conditions in key metros. In contrast, CoStar placed national occupancy at 91.9%, up just 10 basis points from Q1 but unchanged from Q3 2024. The discrepancy may reflect varying methodologies or different weighting of stabilized versus lease-up assets.

Still, both datasets suggest that occupancy is either holding firm or gradually improving, a sign that leasing demand remains healthy even as new supply enters the market at a slower pace. If these trends continue, operators could regain more pricing power heading into the second half of the year.

Among the 69 markets tracked by CBRE categorized across six U.S. regions (Pacific, Mountain, South Central, Southeast, Midwest and Northeast), roughly 39% experienced negative year-over-year rent growth in Q2 2025, a notable increase from 26% in Q1. Additionally, the number of markets seeing deepening rent declines rose significantly: 16 metros recorded greater negative rent growth quarter-over-quarter, up from just eight in the prior quarter.

At the regional level, the Midwest led the nation in annual rent growth, averaging 3.7%, followed by the Northeast at 3.1% and the Pacific region at 1.0%. These gains suggest relative stability in historically slower-growth markets and affordability-driven demand in certain metros.

On the metro level, the highest year-over-year rent growth was observed in Lexington, Ky. (+6.2%), Providence, R.I. (+5.7%) and San Francisco (+5.4%). In contrast, the metros with the steepest rent declines were Austin, Texas (-7.2%), Denver (-4.8%), Phoenix (-4.5%).
These underperforming Sun Belt markets continue to face the effects of rapid supply expansion and demand softening, contributing to rent corrections and increased concessions.

U.S. Capital Markets  

Multifamily investment activity saw a moderate rebound in Q2, despite ongoing economic headwinds. According to CoStar, total quarterly sales volume surpassed $26 billion, a 6.2% year-over-year increase and a 12% jump from the previous quarter. While capital remains selective, investors continue to pursue assets in resilient markets, particularly those demonstrating strong rent rolls and stabilized occupancy. Transaction activity suggests cautious optimism as the sector works through a higher-for-longer rate environment. On the other hand, the average price per unit in Q2 2025 rose 6.7% year-over-year but declined 5.4% from the previous quarter, settling slightly above $200,000 by the end of the quarter.

U.S. Build-to-Rent Market

The build-to rent (BTR) segment remains dynamic but increasingly nuanced. National effective rents rose modestly to $2,206, a 0.7% quarter-over-quarter increase, according to Yardi’s Q2 BTR report. Occupancy stood at 91.8%, with notable underperformance in select markets like McAllen, Texas (68.1%), Providence (75.4%), and Huntsville, Ala. (75.8%). These lower rates suggest a potential saturation in secondary or oversupplied regions or a mismatch between pricing and renter expectations.

On the supply side, construction activity significantly declined, with units under construction falling 37.5% year-over-year to approximately 68,900 units. Yet, completed units increased 21.9% year-over-year, indicating that developments already underway continue to hit the market. Phoenix led the nation in new deliveries (1,377 units), followed by Indianapolis (487) and San Antonio (469).
Sales activity, meanwhile, continues to trend downward. BTR sales volume dropped 53.7% year-over-year and 29.1% quarter-over-quarter, settling just above $230 million. This dip may reflect investor caution amid higher vacancy pressures and rising concessions. According to Burns BTR survey data, operators are actively deploying move-in incentives and renegotiating leases to encourage renewals and support retention, signaling a shift from aggressive expansion to strategic stabilization.

Market Outlook

The second half of 2025 will likely be shaped by continued supply constraints, and the evolving landscape of renter demand. While multifamily absorption remains solid, the tightening development pipeline could widen the supply-demand imbalance in the near term. 
The slowdown in deliveries, now evident across multiple quarters, is expected to intensify into 2026 as fewer projects enter the pipeline. While this may relieve some downward pressure on rents in overbuilt submarkets, it could exacerbate affordability challenges in high-demand areas, reinforcing long-term concerns about housing availability.

Rent growth is expected to moderate at the national level, with performance increasingly dictated by regional supply dynamics and local labor market strength. Occupancy should remain relatively stable, though some Sun Belt and Mountain region metros may see further softening as they absorb elevated new supply volume.

For the BTR segment, moderation in new starts may help recalibrate markets that have seen rapid build-up, especially as operators adjust pricing and concessions to align with shifting consumer behavior, in response to leasing challenges and rising competition.