While 2024 was a year to forget in rental housing—with a national supply surplus driving below average occupancy, increased concessions, and negative rent growth in many markets—it’s hard not to feel optimistic about the year ahead. If 2024 had a silver lining, it may have been that the damage stabilized toward the end of the year, setting the stage for a return to normal in 2025.
In many respects, 2024 actually outperformed economic projections, and underlying metrics bely the lackluster property performance experienced by much of the multifamily industry. The year even finished with some modest fireworks, as annual effective rent growth turned positive, .3%, at the national level for the first time since early 2023.
The national labor market was relatively strong, with an unemployment rate in the low 4% range and more than 2 million jobs created over the course of the year, primarily in the health care, government, hospitality, and construction sectors. The private sector will need to pick up the slack in the year ahead to maintain the job growth rate—which directly contributes to household formation and housing demand.
Wage growth was also persistently high last year, hovering at or above 4% most of the year. While wage growth is expected to moderate below 4% in the months ahead as inflation eases, projections show it remaining above 3%, which is still favorable for rent growth.
The focus on resident retention benefited operators to a degree, but it didn’t translate to improved occupancy in 2024 due to supply outpacing demand. While overall absorption has been very strong, the U.S. occupancy rate for stabilized properties has not displayed positive year-over-year growth since the middle of 2022. Occupancy rates spent most of 2024 below 94%, but several leading markets were back in the 95% range before seasonality kicked in during fall and early winter. This year, U.S. markets should get back to 94%-plus occupancy and sustain above that level.
In addition to oversupply, leasing traffic was also slowed in 2024 by an increased emphasis from operators on resident retention. Strong closing ratios kept new lease numbers within sight of norms, but, with more people staying put, the prospect pool was limited. As renewal rates begin to moderate and job growth stabilizes, traffic should see an uptick in the coming months. However, fewer concessions and leasing incentives being offered might offset some of the turnover in the market.
While some incentives will still linger, especially in markets with an abundance of active lease-up properties, 2025 should be a year of concession burnoff. Over the past year, despite strong job growth, it wasn’t uncommon to see promotions offering upward of six to eight weeks of free rent. When those concessions discontinue, effective rents could see a stronger increase than merely market rent growth—which on its own should approach 3% in most markets.
The supply surplus remains the biggest hurdle to fully overcome, but some markets have already crested the supply peak and started the long-awaited descent to levels that will match demand. The result should be more balanced performance. Major markets like California’s San Francisco and San Jose; Seattle; and New York have already turned the corner. More markets are beginning to stabilize, and even Class A assets in areas of high supply concentration should reach that summit by the end of 2025. Supply will likely stay at more moderate levels for the next couple of years, returning to pre-COVID averages in many cases and clearing the way for rent growth.
Single-family homes remain unattainable for many current renters due to elevated prices and high mortgage rates, which will keep many people in the rental market longer than usual. First-time home buyers only represented 24% of the market in 2024, down from 32% the previous year, according to an annual report from the National Association of Realtors. The median age of first-time home buyers also increased to 38, up from 35 in 2023. From 1993 through 2021, the median age held firm in the 30 to 33 range. Renters are staying in the rental market longer, which increases demand.
After a challenging year for rental housing operators, the scales are finally beginning to tip. 2025 is expected to bring the first positive change in occupancy in three years, rent growth is returning, and wide-scale concessions are headed out the door. The transition won’t take place overnight, but the majority of housing markets are in for a much more stable year in 2025.
