The Multifamily Market Hit a Turning Point in Q3 — Here’s What Investors Need to Know

The U.S. apartment market took a noticeable step down in the third quarter as the wave of new supply built over the past several years collided with softer demand. Rising vacancies, slower rent growth, and a sharp pullback in new starts all point to a sector transitioning from peak oversupply toward the early stages of stabilization.

Despite the deceleration, capital markets activity picked up, and valuations even ticked slightly higher—suggesting investors are beginning to reposition ahead of the next cycle.

Below is a data-driven breakdown of the trends shaping today’s multifamily landscape.

Vacancies Push Higher as New Supply Outpaces Demand

Vacancy rates continued to rise nationwide, reflecting the pressure from elevated construction pipelines.

According to CoStar, the national multifamily vacancy rate reached 8.3% in Q3 2025, up six basis points from the previous quarter and matching the cycle high seen in late 2024. That figure is now 19 bps higher than a year ago, underscoring how quickly new units have come online.

Stabilized vacancy—which filters out properties still in lease-up—also increased:

• CoStar: 6.6% (up 21 bps QOQ)

• RealPage: 4.6% (up 28 bps QOQ)

These two providers diverge slightly because of differing definitions of stabilization:

• CoStar: property must reach 90% occupancy or operate for 18 months

• RealPage: 85% occupancy threshold, regardless of age

Regional Vacancy Trends

The South continued to feel the most pressure from new supply:

• South: 8.7% (+28 bps QOQ, +69 bps YOY)

• West: 5.9% (+21 bps QOQ)

• Midwest: 6.0% (+16 bps QOQ)

• Northeast: 3.6% (+12 bps QOQ), still the tightest region in the country

Rent Growth Cools—and Turns Negative in Select Markets

Rent growth decelerated materially in Q3, with one major dataset reporting the first negative print of the year.

• CoStar: +0.6% YOY (down from +0.9% last quarter)

• RealPage: –0.1% YOY, signaling flat-to-negative pricing power in many markets

Every region experienced slower momentum:

• Midwest: +2.4% YOY

• Northeast: +2.2% (CoStar) / +1.9% (RealPage)

• West: +0.1% / –0.4%

• South: –0.5% / –1.6%

The South and West remain weighed down by a concentrated pipeline of new deliveries, especially in Texas, Florida, Arizona, and Colorado.

Starts Fall to a 13-Year Low as Developers Hit the Brakes

One of the clearest turning points this quarter came from the supply pipeline. Multifamily starts fell 11.3% QOQ to 65,194 units, marking the lowest level since 2012.

Year-over-year, starts declined a steep 32.2%, a sign that construction financing challenges, oversupply concerns, and historically high insurance and operating costs are forcing developers to recalibrate.

Starts by Region (YOY)

• Midwest: –44.7%

• Northeast: –29.5%

• South: –31.7%

• West: –14.6%

Completions also fell—down 4.8% QOQ and 25.4% YOY—but they remain historically elevated. Q3 still posted the third-highest completion total since 2000.

The South accounted for nearly half of all deliveries nationwide at 47.6%, continuing a multi-year trend.

Absorption Cools Sharply After Record Q2 Levels

Demand pulled back in Q3 following one of the strongest absorption quarters on record.

• RealPage: 42,436 units absorbed (down from 219,013 in Q2)

• CoStar: 117,367 units absorbed (–25.4% QOQ, –23.2% YOY)

Although trailing 4-quarter RealPage absorption is up 31.9% YOY, the quarter-to-quarter decline reflects a return to normalized leasing patterns rather than a collapse in demand. Still, with deliveries historically high, even moderate demand can’t keep occupancy flat.

Transaction Volume Rebounds — Even as Cap Rates Edge Higher

Investor activity accelerated meaningfully in Q3:

• Sales volume: $35.7B (+27.8% QOQ, +24.9% YOY)

• Cap rates: 6.39% (up 10 bps QOQ)

• Valuations: NCREIF index +1.6% QOQ, +0.8% YOY

Buyers appear increasingly willing to transact at today’s pricing, especially as interest rate expectations stabilize and the belief grows that Q3–Q4 will mark the bottom of the current pricing cycle.

Operating Expenses Finally Ease—But Long-Term Cost Pressures Remain High

After several years of rapid inflation, operating expenses showed a rare decline. Yardi Matrix reports average per-unit expenses fell 0.9% QOQ to $732.70, down 0.4% YOY.

But zooming out, expenses have surged 28.3% over five years, growing far faster than rents.

Key Q3 Expense Movements

Declines:

• Insurance: –10.1% QOQ / –6.6% YOY (yet still +78.4% over five years)

• Management fees: –4.9% QOQ

• Taxes: –4.5% QOQ

• Administrative: –4.7% QOQ

Increases:

• Maintenance & repairs: +4.8%

• Utilities: +2.8%

• Payroll: +1.9%

• Marketing & advertising: +1.6%

  
  

Insurance remains the biggest structural cost challenge and shows no signs of returning to pre-2019 norms.

Bottom Line for Investors

The third quarter confirms that the multifamily sector is in the middle of a supply-driven correction. Vacancy rates are rising, rent growth is slowing, and developers are pulling back hard—setting the stage for a healthier, more balanced market in the next 12–24 months.

At the same time:

• transaction activity is increasing,

• valuations have stabilized, and

• cap rate expansion has slowed.

For long-term investors, oversupplied markets often create compelling acquisition opportunities—especially when financing conditions improve and new development pipelines tighten.