There's no doubt about it: The apartment market remains robust. Vacancies have fallen below 5 percent for the first time since 2001, while rents continue to increase and have already surpassed the previous peak level. Yet, amid this standout success, we're now seeing some of the demand dynamics shift.

The reason the apartment market could sustain such a robust recovery was the decoupling of demand from broader economic trends. Most of the incredible absorption that has driven vacancies so low, so fast, has been powered by the shift from homeownership to renting.

Despite the homeownership rate plunging to 65.4 percent, we may be closing in on the range where the massive own-to-rent shift will peter out. The past two quarters have signaled the beginning of the next stage of apartment demand: the long-delayed pop in household formations.

Household Formation and Gen Y

After an extremely weak 2010, household formations started to take off in 2011 and continued this momentum into the first quarter of 2012. In March, the number of U.S. households was up a whopping 1.8 million from the year before, well above the trend rate of 1.1 million.

However, here's where the latest stall in this troubled recovery comes into play for the apartment market. Right now, our outlook anticipates that absorption will be sustained, albeit at more moderate levels, by the pop in household formations. But if the sluggish economy interrupts this spike in household formations, future apartment demand could be weaker than we anticipate.

A corollary to the household formation explosion is the demand that will be generated as the massive population of young adults gets jobs and moves into apartments. We've seen some significant declines in young adult unemployment in recent months, but the newly weak labor market could also disrupt this improvement.

Our outlook for demand is that it will remain positive and healthy but less robust than it has been, as a result of these shifting dynamics.

Growing Pipelines

Meanwhile, the increase in multifamily development continues. Through the first half of this year, multifamily starts averaged a 212,000-unit annual rate, up from last year's 177,750 and nearly double the 50-year low of just over 110,000 units for 2009. While this is still well below the historical rate of around 350,000 units per year, we expect starts to continue to increase. But we also recognize that there's a lag between starts and completions, meaning the market will still be undersupplied for a time.

On a macro level, this new supply and our expectation that the upswing in development will continue— coupled with the anticipated moderation of demand— means the recovery in vacancies will begin to lose steam in 2013 and be followed by eventual increases. This process will vary from market to market in terms of timing and strength.

New York City, the nation's tightest market, saw the largest increase in stock in the past year, with a 1.6 percent addition to its inventory. Despite this, vacancies have continued to fall amid strong demand. Beyond New York, the markets facing the most new supply over the next two years include the Washington, D.C., metro; Austin, Texas; San Antonio; and Salt Lake City. Of these, San Antonio has the highest current vacancy rate, at 6.7 percent.

Even as vacancies begin to rise in the 2014–15 period, they'll still be very low and continue to support healthy rent increases. But the shift in occupancy will temper market NOI gains.

Peter Muoio, Ph.D., is senior principal of New York–based research and consulting firm Maximus Advisors.