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The multifamily sector experienced subdued but positive demand during the first half of 2023, primarily occurring 

during the second quarter, due to slowing but still-positive job growth, elevated single-family housing prices in many 

locations across the country, and favorable demographics. This demand is expected to remain stable for the remainder 

of the year, with rent growth increasing slightly but with vacancies likely rising. It is important to note that multifamily 

fundamentals and demand can, and do, change and will vary by metro, submarket, and, in some cases, by 

neighborhood. 

Further out into the forecast, our more tempered outlook for the sector is based on the expectation of a recession 

occurring in the fourth quarter of 2023 or the first quarter of 2024. An economic slowdown, combined with elevated new 

multifamily supply of more than one million units underway, is expected to place additional stress on the multifamily 

sector, dampening rental demand in the short term, thereby pushing up vacancies and curtailing rent growth over the 

next 18 months. Nevertheless, we believe that demand for multifamily rental housing will remain stable over the short 

term due to home affordability constraints. This may be influencing renters that could pursue homeownership to stay in 

their units for another year or two.

Multifamily Vacancy Expected to Rise 

Multifamily Economic and Market Commentary

July 2023

2023 Mid-Year Multifamily Market Outlook – Demand Subdued But Positive 

Source: Fannie Mae MF ESR

Although the national multifamily vacancy rate increased slightly during first quarter of 2023 and remained 

unchanged during the second quarter, we expect it to rise over the remainder of the year and possibly into early 

2024. Despite expected ongoing multifamily rental demand, newly delivered supply is expected to remain 

elevated throughout this year and next, thereby pushing up estimated vacancy levels, as seen in the chart above. 

As a result, we anticipate that the U.S. national multifamily vacancy rate will rise to an estimated 6.0 percent by 

year-end 2023, which would take it above its estimated 15-year average of 5.8 percent. We do expect the national 

vacancy rate to peak at 6.25 percent in 2024. However, we then expect it to decline to 6.0 percent by 2025 as 

economic conditions and job growth improve after the recessionary slowdown.

3.0%

5.0%

7.0%

9.0%

$925

$1,125

$1,325

$1,525

$1,725

Rent Level Vacancy Rate

Estimated Multifamily Rent and Vacancy – Historical and Forecast
Multifamily Economic and Market Commentary

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Rent Growth Expected to Decline but Normalize Longer-Term...

Rent growth turned positive this year, but we do not expect it to keep its momentum over the remainder of the year. 

We are estimating that rent growth was 1.0 percent for the first half of 2023 due to positive-but-subdued rental 

demand stemming from ongoing job growth. We expect that the trajectory of rent growth over the second half of the 

year will begin to ease, ending the year in the range of 1.5 percent to 2.0 percent. For comparison, as of July 17, 

2023, CoStar is also expecting overall rent growth to be positive at 1.1 percent in 2023, and then to further improve 

over the next few years, as seen in the chart below. 

Source: CoStar, Inc. – Data as of July 17, 2023 

Multifamily Effective Rent Change 2010 – 2025 – All Multifamily Classes

Demand for all classes of multifamily units has been positive but still below recent trends. In fact, as of July 17, 

CoStar is expecting Class A unit rents to experience the lowest level of rent growth this year, forecasting just 0.8 

percent growth compared to 2.6 percent in 2022. Class B rents are not far behind at a forecasted 0.9 percent in 2023, 

compared to 3.7 percent in 2022, and Class C units are forecasted to see rent growth of 1.6 percent this year, 

compared to 4.7 percent rent growth last year. 

Further out into the forecast, CoStar expects that rents for all classes of units will remain below average this year, as 

seen below. However, overall demand is expected to improve starting next year, as evidenced by the minimal 

distinction in rent growth percentages between classes of units, with Class C rent growth expected to slightly 

outpace both Class B and Class A in 2024 and 2025.

... With Very Little Differentiation Between Classes

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Effective Rent Growth Forecast

-4%

-2%

0%

2%

4%

6%

8%

Class A Class A Fcst

Class B Class B Fcst

Class C Class C Fcst

Multifamily Effective Rent Change 2019 – 2025 – By Class

Source: CoStar, Inc. – Data as of July 17, 2023 
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Multifamily Economic and Market Commentary

Concessions Stable

Concession Value (% of Asking Rent)

% of Units Offering Concessions

National Concession Rates by Class

Source: RealPage, Inc. 

With rent growth trends trailing the historical average, concessions have remained unusually stable for all classes 

of units during the first half of the year, as seen in the charts below. The same is true regarding the number of 

multifamily units offering concessions. According to data from RealPage, as of second quarter 2023, a total of 

13.1% of units were offering concessions. Just 13.5% of Class A units were offering concessions during the 

quarter, with Class B units close behind at 13.2%. Class C rose slightly to 12.6%, as seen in the chart below right. 

While the average concession level for all units remains at 4.5% – less than one month’s free rent on average – we 

expect it to increase by year end. 

Class A concession levels remain higher than those for Class B and C units, indicating that property owners are 

continuing to offer more generous concessions upfront for newer Class A units to compete with newly delivered 

supply. For those Class A units that are offering concessions, the average concession rate as of second quarter 

was 5.6 percent – less than a month’s free rent – and down quite a bit compared to second quarter 2022’s 6.7 

percent. Class B and C units have an average concession rate of just 4.0 percent as of second quarter 2023 

compared to about 5.0 percent as of second quarter 2022. 

Source: RealPage, Inc. 

0%

2%

4%

6%

8%

A B C

5%

10%

15%

20%

25%

30%

A B C
Multifamily Economic and Market Commentary

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Source: RealPage, Inc. 

Usually, the rental increase rate for lease renewals tend to be slightly higher than those for new leases. While that 

might seem counter-intuitive, it is because property owners are often competing with other new developments for 

tenants, as well as the use of concessions. However, that trend changed starting in 2021 and did not revert back until 

late 2022. As seen in the chart below, renewals are only slightly above new leases as of second quarter 2023. 

Lease Rates Normalizing 

Rental Rate Change for New Leases and Renewals - All Multifamily Units

-10

-5

0

5

10

15

20

Forecast

Source: CBRE Econometric Advisors 

National Multifamily Net Operating Income Growth - Historical and Forecast

Although net operating income growth has been slowing down quite significantly since last year, this decline is not 

unexpected. Indeed, the sudden increase in net operating income growth during 2021 and early 2022 was 

unsustainable in our view and stemmed from the sharp spike in rental demand during the pandemic but also due to 

the decline in rental income at the beginning of the pandemic. As seen in the chart below, CBRE Econometric Advisors 

is expecting net operating income growth to decline this year but then stabilize next year, and then increase slightly 

further out into the longer-term forecast. 

Net Operating Income Growth Slowing but Expected to Remain Positive 

-5%

0%

5%

10%

15%

20%

New Leases Renewals
Multifamily Economic and Market Commentary

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Multifamily Property Values Declining...

Data from MSCI Real Assets shows that multifamily property values have been declining since the beginning of the 

year. We expect this trend to continue through the second half of 2023, perhaps declining within a range of -15 

percent to -20 percent. However, multifamily property values peaked at an increase of nearly 24 percent in first 

quarter of 2022, suggesting that the current rate of deceleration is the beginning of a return to a more normalized 

trend over the long-term. 

10-Year Treasury and Multifamily Capitalization Rates

Source: MSCI Real Assets, and Federal Reserve, Selected Interest Rates H.15, per Moody’s Analytics

MSCI Real Assets Commercial Property Price Index - Multifamily

The pace of property sales has declined as well. Given the year-to-date performance for the first half of the year, we 

expect multifamily sales will slow in 2023, possibly totaling less than $200 billion compared to $304 billion in 2022. And 

with multifamily cap rates having increased for several quarters, and property prices facing downward pressures, we 

believe cap rates are likely to further increase during the second half of the year, from the current rate of about 5.3 

percent to between 5.5 percent and 6.0 percent over the next 12 to 18 months. 

Source: MSCI Real Assets

-30%

-20%

-10%

0%

10%

20%

30%

50

100

150

200

250

300

CPPI YoY Change

RCA Apt CPPI ( Dec 2006 = 100)

US Apartment CPPI YoY Change

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

10-Year Treasury

Cap Rates

... and Sales Volume Slowing Significantly
Multifamily Economic and Market Commentary

2023 Multifamily Mid-Year Outlook: Turbulence Still Expected

We maintain a cautious outlook for the multifamily sector for the second half of 2023. As expected, we have seen a 

softening in demand during the first half of the year, resulting in a below-average estimated rent growth of just 1.0 

percent. But the national trend is not representative of all the nation’s metros. Some metros have seen flat-tonegative rent growth, including Austin, Las Vegas, San Francisco, and Phoenix. Other metros both large (such as 

Boston, Chicago, and San Diego) and small (such as Knoxville and Midland-Odessa) have experienced rent growth of 

more than 2.0 percent. In other metros, especially those with a large amount of supply expected to come online over 

the next 12 to 18 months, rent growth could decline and concessions increase to compete with new completions. 

With interest rates expected to remain elevated, coupled with declining property sales, we expect multifamily 

origination volume levels will decrease in 2023 compared to 2022. As of May 2023, the Mortgage Bankers’ Association 

estimates that multifamily originations volume will be $375 billion in 2023 and $456 billion in 2024, but that is subject 

to change. Based on current trends, our estimated annual multifamily originations tend to be lower: $310 billion to 

$350 billion in 2023 and $410 billion to $450 billion in 2024. 

As a result, our outlook has not changed much since the start of the year. We still expect the multifamily housing 

market to experience a softening in demand in 2023 and extending into 2024.

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Source: CBRE-EA 

National Multifamily Cap Rate Forecast

As seen in the chart above, the various cap rate forecast scenarios reflect a peak difference of nearly 100 basis points 

between baseline and severe downside occurring in 2023, according to CBRE Econometric Advisors. CBRE-EA’s 

baseline multifamily cap rate forecast anticipates that although multifamily cap rates peak at 5.3 percent in 2023, they 

will decline to 5.0 percent by year-end 2024. In contrast, the severe downside scenario is that cap rates will peak at 6.2 

percent in early 2024 and improve to 6.0 percent by year-end 2024. CBRE-EA’s downside scenario is closer to our view, 

with multifamily cap rates reaching 5.7 percent this year and then ending 2024 at 5.5 percent. 

Multifamily Cap Rates Expected to Peak in Early 2024 

2.5

3.5

4.5

5.5

6.5

7.5

8.5

Base Downside Severe Downside
Multifamily Economic and Market Commentary

Kim Betancourt, CRE

Vice President

Tim Komosa

Senior Manager

Multifamily Economics and Strategic Research

July 17, 2023

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae’s Economic and Strategic Research (ESR) Group included in 

these materials should not be construed as indicating Fannie Mae’s business prospects or expected results, are based on a number

of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. 

Although the ESR Group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it 

does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. 

Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, 

opinions, estimates, forecasts, and other views published by the ESR Group represent the views of that group as of the date 

indicated and do not necessarily represent the views of Fannie Mae or its management.

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