The U.S. multifamily market saw significant growth in demand during the third quarter of 2024, with a total of 176,000 units absorbed—the highest absorption rate since Q3 2021. This surge in demand came close to matching the 178,000 newly delivered units during the same period, narrowing the supply-demand gap to its smallest margin in three years. As a result, the national vacancy rate saw a 10 basis point drop, reaching 7.8%—the first decline in vacancy since late 2021.

However, despite the stronger demand, rent growth has continued to soften. The national average annual asking rent grew by just 1.1% in September 2024, compared to 1.2% at the end of July. Since mid-2023, rent growth has been relatively stable at around 1% annually, following the sharp slowdown seen in 2021 and 2022. Quarter-over-quarter rent growth also declined by 0.5%, after recording 1% growth in each of the previous two quarters.

When looking at individual markets, Washington, D.C. led the nation with an impressive 3.5% annual rent growth, closely followed by Richmond and Detroit at 3.4%. Nine of the top 10 markets for annual rent growth saw increases of at least 3%. In contrast, Austin struggled with a 4.7% decrease in annual asking rents. Other Sun Belt markets such as Raleigh, Jacksonville, Phoenix, and Atlanta also saw declines, with annual rent decreases ranging from 2.9% to 1.9%. In fact, nine out of the ten worst-performing markets for rent growth were located in the Sun Belt, where supply-demand imbalances remain a challenge.

Luxury properties (4- and 5-Star units) led absorption, with over 147,000 units taken up during the quarter. However, despite the higher absorption rate, annual rent growth for luxury properties remained weak, finishing at just 0.3% in September 2024. This segment also reported an elevated vacancy rate of 11.1%. In comparison, mid-priced 3-Star properties fared much better, driven by rising demand and a lower vacancy rate of 7.1%. These mid-tier assets also saw stronger rent growth, at 1.5%. The uptick in demand for 3-Star properties could be attributed to factors like improving consumer confidence, reduced inflation, and a steady economic expansion.

Looking ahead, the multifamily sector is expected to add 636,000 new units in 2024, marking a 40-year high in new supply. Property performance through the remainder of 2024 and into 2025 is likely to vary by market and asset class. Sun Belt markets and luxury properties remain the most vulnerable to oversupply risks, while Midwest and Northeast regions, along with mid-priced properties, could continue to see strong performance.