U.S. Apartment Market
In the last quarter of 2024, the apartment market exhibited significant shifts, with annual absorption surpassing new supply by 11.7%. Annual absorption reached over 666,000 units, marking a net increase of nearly 450,000 units year-over-year, the highest point since Q1 2022. This surge in demand represented more than a threefold increase compared to the previous year, according to RealPage data. Meanwhile, new apartment supply continued to rise with a 6.5% quarter-over-quarter increase and a 37.8% year-over-year increase, exceeding 588,000 units completed by Q4 2024.
The quarterly supply-demand gap, which had been narrowing since the beginning of 2024 closed into negative territory, suggesting a potential for slight rent increases and the return of supply pressures if housing starts and permits continue to decline.
National effective rent for Q4 2024 stood at $1,831, reflecting a 1.3% year-over-year rise. While demand surged, rent growth remained moderate compared to previous years due to waves of new supply in some markets. Occupancy rates remained stable, with a slight improvement to 94.8%. As units are absorbed more quickly, occupancy is likely to rise in subsequent quarters, signaling a competitive but not overly strained market.
From a metropolitan area perspective, CBRE’s research indicated that 42 of the 69 markets analyzed saw positive year-over-year effective rent growth in Q4 2024. Notably, all markets in the Midwest and Northeast region experienced positive rent increases. Providence, R.I., recorded the highest growth at 4.8%, while California’s Inland Empire had the lowest at 0.3%. On the other hand, most of the markets in the Mountain and Southeast region experienced negative rent growth. Significant declines were observed in Austin, Texas (-7.2%); San Antonio (-5.1%); Phoenix (-4.3%); Atlanta (-4.0%); Raleigh, N.C. (-3.7%); Jacksonville, Fla. (-3.5%); Dallas (-3.4%); Denver (-3.4%); and Tucson, Ariz. (-3.1%).
U.S. Capital Markets
In 2024, quarterly sales volumes experienced both challenges and recovery. The year started with the lowest sales volume at $16.7 billion in Q1, reflecting a continuation of the downward trend from 2023 in addition to seasonal patterns. However, in Q2, the market rebounded to about $24.2 billion, followed by consistent growth in Q3 and Q4, reaching $33.1 billion by the end of the year. According to CoStar statistics, in Q4, sales volumes experienced a 20.2% quarter-over-quarter rise and a 53.8% year-over-year increase. This steady recovery in sales volumes aligns with the rise in the average price per unit, which increased from about $194,000 in Q1 2024 to $221, 532 in Q4 2024, marking a clear upward trajectory in value and reflecting an annual rise of 10.4%.
Compared to the previous year, 2024 reflected a market transitioning from uncertainty to the start of a recovery. While 2023 struggled with moderate sales volumes and relatively flatter pricing trends, 2024 demonstrated both price appreciation and a steady increase in sales activity. This suggests renewed confidence in the market, with higher-value units and/or limited supply driving performance, even as overall transaction volumes remained below post-pandemic levels. The trends in 2024 point to a more positive outlook as the market builds momentum for potential long-term recovery and growth.
Among the CoStar markets that had at least 20 transactions in Q4 2024, the highest transaction price per unit ranged from $303,000 to about $426,000 in areas such as San Jose, Calif., San Diego, San Francisco, Miami and Boston. Conversely, the markets with the highest quarterly sales volume, in descending order, were New York, Washington, D.C., Los Angeles, Atlanta and Denver with values ranging from about $1.6 billion to $2.4 billion.
U.S. Build-to-Rent Market
The national build-to-rent (BTR) market revealed a mixed performance in Q4 2024, with both positive and negative year-over-year growth trends. National effective rent growth in BTR communities rose by 0.4% year-over-year, reaching $2,171. However, the national rent dropped by 0.9% compared to Q3 2024 levels, but rose by 3% from Q4 2022, according to Yardi’s single-family BTR national trend report. Occupancy levels peaked at 92.7% for the year, though this represented a decline of 0.5 percentage points from the previous year. The markets with the lowest occupancy levels in BTR communities: Atlanta (69.7%), Huntsville, Ala. (79.9%), Charleston, S.C. (83.9%), Chattanooga, Tenn. (85.3%), St. Louis (85.7%), and Southwest Florida (85.7%).
BTR sales volume saw a remarkable increase, more than doubling year-over-year from over $351 million to over $820 million, reflecting a 68.2% quarter-over-quarter rise. This surge is largely attributed to an expansion in active markets year-over-year (from eight to 13) and significant transactions in existing markets. For instance, Denver’s sales jumped from $32 million to $101 million. Similarly, Phoenix experienced a boost and grew from about $89 million to $159 million, driven by a rise in the number of properties Yardi tracks. These transactions were instrumental in driving the overall increase in sales activity.
In contrast, construction activity and completed units both experienced considerable declines. Units under construction fell by 27.8% year-over-year, with 74,635 units remaining under construction by the end of Q4 2024. Completed units totaled 5,008, dropping to its lowest point in two years, marking a 36.7% quarter-over-quarter drop and a 19.6% year-over-year decline. Despite these reductions, markets like Atlanta (644 units), Phoenix (473 units), Austin (392 units), West Palm Beach, Fla. (326 units), and Tampa, Fla. (235 units) saw the highest levels of completed units.
U.S. Economy
There is no doubt the election results, and the unexpected speed in which they were finalized, provided a tremendous boost to both consumer and business sentiment. The National Federation of Independent Business’s Small Business Optimism Index soared 11.4 points since October to 105.1, the highest level since October 2018. The uncertainty component of the index plummeted by 24 points as business owners feel they have a better handle on upcoming, business-friendly economic policies. The top three challenges right now remained exactly the same as a year ago, with inflation coming in first, followed by quality of labor and finally, taxes. The outlook for expansion and general business conditions improved significantly but credit conditions remained constrained.
The University of Michigan’s Consumer Sentiment Index has been very volatile, surging at the beginning of 2024 as consumers saw progress on inflation, and then all but wiping out those gains by the summer. The election results added 3.5 points over two months when consumers expressed optimism about current economic conditions. Since then, however, concerns about tariffs and their impact on inflation have reversed those gains with the index giving back 6.2 points, returning to the low summer levels. The declines were broad-based with sentiment declining regardless of political affiliation, age or wealth groups. Year-ahead inflation expectations surged to 4.3%, the highest level in more than a year.
Despite the January jobs report coming in below expectations with 143,000 jobs added, the labor market continued to show its resiliency. Revisions to the November and December reports added 100,000 jobs to payrolls, and the unemployment rate edged down to 4.0%. Both jobless claims and layoffs remain low.
The January employment report included annual revisions from the Bureau of Labor Statistics (BLS), which dropped the number of jobs by 589,000 for the year. Even though the amount of cooling in 2024 was underestimated, the BLS also updated population figures which added two million more people to the labor force, making a 4.0% unemployment rate particularly impressive.
Unemployment as of November for large metropolitan areas (population of one million or more) with the highest and lowest rates are displayed in the chart below. Markets with the highest unemployment rates experienced year-over-year increases ranging from a high of 1.7 percentage points in Detroit to just 0.2 ppt in Riverside, Calif. Conversely, the unemployment rate in Hartford, Conn., dropped 1.1 ppt in the last year while Minneapolis’s rose by one full percentage point. For context, the national unemployment rate rose by 0.5 ppt over the same period.
Wages have now risen more than 4.0% for four consecutive months. After leading the way in layoffs in 2024, mainly due to structural changes, employees in the technology sector saw an average increase of 5.2% year-over-year in January. Professional/business services, other services, financial activities (including the real estate sector) and education/health rounded out the top five with wages increasing by 4.4% or more. Despite the labor market beginning to turn in favor of employers as fewer jobs are available and employees are staying put, wage growth continues to outpace inflation.
Outlook
Among a sound labor market, GDP growth and inflation, the U.S. economy is performing well, all but guaranteeing fewer Fed rate hikes in 2025. In fact, the CME FedWatch tool is forecasting just one rate hike this year, although several other economic forecasters still expect two.
Regardless, for the apartment industry, the 10-year Treasury bond rate which is closely tied to commercial mortgages, recently hit the highest level (4.8%) since October 2023. Its volatility will remain a cause for concern over the coming months, especially for owners with loans coming due which were financed at lower rates, and those looking to borrow for capital improvements or acquisitions. There are signs that investors are trickling back to the market, so the valuation stalemate might finally break in 2025.
While there’s no reason to expect apartment demand to wane given the healthy economic environment, uncertainties persist around the new administration’s policies on tariffs, immigration and taxes. Mass deportations stand to have the greatest impact on the economy and thus, the industry, but the uncertainties in and of themselves also have a dampening effect on economic activity. For now, however, 2025 is expected to bring steady demand, fewer deliveries and better, if not up to average, rent growth.