“States with the largest share of non-citizen construction labor force include New Jersey, California, Texas, Nevada, Georgia, Florida and North Carolina,” the report noted.

Even though the effect of such policies may not be apparent until the end of 2025, “there is potential for change that cuts in both positive and negative directions,” it commented.

“Our base case remains that demand drivers—including demographics that favor household growth, positive employment gains and ongoing weakness in the for-sale housing market—will remain healthy in 2025 and support moderate advertised rent growth of 1.5% nationally.”

Still, even though rents are moving up, they have fallen significantly since 2021 and 2022 due to oversupply in key markets. Multifamily advertised rents rose just 1% in the 11 months through November 2024. However, absorption rose by 375,000 units – some 2.3% of stock – through October, marking “some of the highest demand numbers in recent history.” By the numbers, absorption was highest in Dallas and Houston. As a percentage of stock, Austin, Columbus, Phoenix and Charlotte led the way.

Renting is also driven by weak buying power, the high cost of home ownership, and mortgage rates that in December were in the 6.5% range. The Fed’s rate cut was not enough to make up for the cost differential between renting and owning a home.

“Rates must fall considerably—by at least 100 basis points and probably much more—to significantly change the homeownership equation,” the report stated. The median age of first-time home buyers climbed from 35 to 38 years, and only one in four buyers was a first timer. On top of that, many were shut out of the market because more than 25% of single-family homes were bought with cash.

Rent growth was not uniform. It was highest in the Northeast and Midwest. In 2025, metro rents are forecast to rise 3.1% in New York, 2.5% in Chicago and Kansas City, 2.4% in Washington, DC, and 2.3% in New Jersey. Smaller increases are also expected in Boston, Indianapolis, Philadelphia, Columbus, Los Angeles, Seattle, and the Twin Cities, among others. However, other cities will see rents drop, including by 0.1% in Atlanta, 0.2% in Raleigh-Durham, 0.4% in Phoenix, and 1.4% in Austin.

The high number of new apartments arriving on the market means rents are unlikely to climb significantly in 2025 and 2026, but that could change in 2027 and 2028, the report noted. The spikes in the cost of financing, labor and materials, as well as overbuilding caused a sharp drop in starts and delays in others. Banks tightened lending standards and reduced their exposure to CRE. The risk of labor shortages as workers are deported could cause additional delays and higher costs.

The report also pointed out a greater share of rental construction will be taken up by niche segments like affordable housing and single-family (SFR) or build-to-rent (BTR) properties. Market-rate units fell from 75% to 60% of rental starts. In contrast, the share of starts of affordable units rose to 33%, and the share of SFR/BTR units rose even faster to 5%.

With more than three million homes needed to meet population growth in the next decade, the report forecast that nearly 74,000 affordable units will be delivered in 2025, while the SFR/BTR sector will add almost 30,000 this year.

Capital markets are still uncertain.

Treasury rates are unlikely to fall to levels that would spur an investment boom. The value of deals was virtually the same in 2023 and 2024 -- $62.7 billion through October, and is likely to remain low. Investors continue to focus on fast-growing markets in the Sunbelt and Mountain West, as well as some primary markets.

“Multifamily distress remains low, but the special servicing rate has increased, leading to the question, How long can banks hold on to underwater loans before forcing a resolution?” the report asked. “We anticipate rising delinquencies in 2025, short of crisis levels but opportunities to buy distressed assets will rise in the next 12-18 months.”

The report said the CMBS multifamily delinquency rate rose in October to 3.2% while the special servicing rate was 6.2%, citing the CRE Finance Council and Trepp. Even though CMBS loans have relatively high delinquency rates, they climbed 206% in 2024, with $104.1 billion issued, primarily for single-asset, single-borrower deals. These loans benefit from their flexibility and tightening bond spreads.

Fannie Mae and Freddie Mac lending increased, but not to past levels. However, the future of these agencies depends on whether the Trump administration succeeds in privatizing these agencies or removing them from conservatorship.

All in all, the report perceives “an abundance of caution that should persist through the first half of 2025.”