Apartment demand has been strong in 2025. Remarkably strong. And yet rents remain flat nationally – and after showing some upward momentum earlier in the year, they have actually begun decelerating.
Why? Supply. The U.S. apartment market is still smack in the middle of its biggest supply wave in 40+ years. While peak deliveries are in the rearview mirror, all those new properties take time to lease up. And all that lease-up competition continues to put downward pressure on rents.
Will demand stay strong in the second half of 2025? And will rents finally rebound?
Apartment Demand in the Second Half of 2025
The crystal ball is fuzzy these days, BUT … if the economy holds up (a big “if”), I think the answer to both questions could be “yes.”
For all the noise around the tariffs and interest rates, the U.S. economy continues to produce steady (though unspectacular) job growth and low unemployment. Inflation has cooled and hasn’t (yet?) re-accelerated despite tariff-driven uncertainty. If those trends hold, that’s a big positive driver for demand.
In fact, despite all the headline noise, the U.S. apartment market is on track for a banner year for net absorption. Through the first half of 2025, net absorption has eclipsed the record pace set over the same period in 2021, according to data from RealPage Market Analytics.
Even if demand moderates through the second half of the year, it should still outpace completions – allowing newly built properties to lease up and concessions to burn off. That *should* boost year-over-year rent growth above the current number of 0.49% through June by end of 2025. And it *should* set the stage for a better rent rebound in 2026, when new supply will drop precipitously.
The Impacts of High Mortgage Rates
Meanwhile, high mortgage rates and sticky-ish home prices have likely kept some older renters renting longer. Many apartment investors trumpet this as a big positive, but in reality, it’s a mixed bag.
Yes, it does contribute to higher retention rates. Higher retention does help limit vacancy and turn costs.
But here’s the other side of the equation: We’re in uncharted waters. We’ve never before seen a sustained period of strong apartment demand and weak home sales. While counterintuitive on the surface, history shows us that a rising tide boosts all ships. Our nation’s economy is somewhat dependent on a healthy for-sale housing market.
When homes are selling, people are spending more money on home improvement and hiring contractors – and that, in turn, boosts economic growth and household formation. So in that type of environment, you lose more renters to home purchase, BUT you typically backfill those units faster and at higher rent.
Regional Breakdowns
Sun Belt and Mountain Region
The Sun Belt and Mountain Region continue to win the bulk of the net new demand but are also receiving the bulk of the new supply. As a result, rents remain compressed across the region as supply does what supply does when added in large numbers.
For operators in these highly supplied markets, the good news is that the macro demand drivers remain firmly entrenched. These markets tend to see better job growth, more in-migration, lower cost of living and younger demographics favorable to apartments. Barring a macroeconomic slowdown, those advantages should drive the rebound as supply tapers back.
Big demand has also helped limit the depth of rent cuts in most of the region. Through June 2025, rent change ranges from -3% to +1% across most of the Sun Belt and Mountain Region. Only four markets saw deeper cuts through June: Austin, Denver, Phoenix and San Antonio. As lease-ups fill up, we should see operators pull back on what have been large concessions; and in turn, effective rents should start to inch back up. But the pace of recovery will obviously vary, with supply hotspots like Austin likely to lag.
Northeast, Mid-Atlantic and Midwest
The Northeast, Mid-Atlantic and Midwest have been the steady eddies. They haven’t seen Texas-sized demand, but they don’t really need to because they have – for the most part – fairly modest supply levels competing for renters. So, occupancy rates remain healthy and rent growth has stabilized around normal levels. Chicago, New York, Cincinnati, Pittsburgh, Minneapolis, Kansas City, Boston and Detroit all ranked in the nation’s top 10 for rent growth as of June 2025.
Barring an economic slowdown, expect more of the same for this region in the second half of 2025. For the most part, it’s just business as normal. However, one factor to watch is the nation’s capital. Federal layoffs and DOGE cuts have cast uncertainty over that market; and while demand fundamentals remain healthy, apartment operators have tapered back a bit on rent growth.
West Coast
The West Coast remains the wild child of the U.S. Big ups and big downs. There’s no better example than San Francisco. Hit hard by the pandemic and its aftermath, San Francsico remains of very few markets where rents remain below pre-COVID levels. But it’s finally found footing in 2025, and rents have rebounded sharply. San Francisco led the nation with a 6.2% rent hike through June 2025, while its neighbor San Jose also cracked the top five with effective rents up 3.4%.
The only other West Coast market with any real rent growth through the mid-point of 2025 was Orange County at 2.1%. Rents were basically flat (-1% to +1%) across all other West Coast markets. We’ve also seen some lost momentum in markets like San Diego, Sacramento, Riverside and Portland.
The reason for the softness isn’t as obvious as it is in the Sun Belt. While there are some supply-heavy submarkets, the West Coast markets generally aren’t seeing a ton of supply. Occupancy rates are still in good shape (and didn’t backtrack in Q2), and demand remains solid. Affordability continues to improve, too.
So, it might just be nervous operators. If the economy holds up and vacancies remain low, we could see West Coast operators get more bullish in the second half of 2025.
Less New Supply in the Second Half of 2025
The bottom line: The only “sure thing” in the national apartment forecast is that there’ll be less new supply going forward. For other variables, it largely depends on how well the U.S. economy holds up.
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