The U.S. multifamily sector is downshifting from a period of strong demand growth from 2016–2024. During that time, a unique combination of elevated household formation driven by strong economic growth, the pandemic, fiscal stimulus and a surge in immigration supported rental demand. Together, these forces drove above-trend absorption and rent growth across most markets, particularly in high-growth Sun Belt metro areas. Private residential investors realized strong returns, with the National Council of Real Estate Investment Fiduciaries (NCREIF) reporting unlevered returns of 19.4% in 2021, the strongest calendar year on record.¹

The rise in interest rates in 2022, as well as slowing household formation, have changed the picture. As a result, the difference in household growth between Sun Belt and gateway markets has narrowed. Markets like Austin, Dallas, and Denver saw annual population growth 2.1 percentage points higher than New York City and Chicago from 2017-2024.² The annualized growth gap has since narrowed to 1.1 percentage points, and we expect it to stay at that level until 2028 before Sun Belt market growth outperforms meaningfully again.

With demand growth converging across cities, in our view, supply has emerged as a key performance differentiator. Today we believe investors are being too quick to “price through” the current supply overhang in some Sun Belt markets, with some of the highest-quality high-rise apartments in Austin transacting at cap rates below 4.3%. Investors may also be too negative on the near-term performance of markets with high supply barriers, like New York and Chicago.

Demand Outlook: Below-Trend Household Formation Ahead

Household formation is set to slow from the 2017-2024 pace, and especially from the 2022–2024 pace when growth averaged nearly 1.4 million net new households per year. In 2026 and 2027, we expect around 583,000 net new households per year, a decline of roughly 58%. Sun Belt locations may feel the decline more than gateway and Midwest markets. There are three main reasons household formation is set to decline.

First, the impact of COVID-era fiscal stimulus has largely dissipated. From 2020 through mid-2021, households accumulated $2.3 trillion in savings from government transfers and constrained spending.³ This supported higher rates of household formation in 2021 and 2022, particularly among younger renters. With those supports now behind us, affordability constraints are likely to become more binding, limiting incremental demand from lower- and moderate-income households.

Second, a portion of demand was likely pulled forward during the pandemic. Remote work, school closures and lockdowns increased demand for housing space and appear to have raised household formation rates.⁴ Meanwhile, pandemic-era migration across cities gave birth to “Zoomtowns” and boosted absorption in many lower-density and high-growth markets. While migration supported near-term demand, it also likely shifted some future household formation forward, particularly in markets that experienced outsized in-migration during 2021–2022.

Finally, immigration has slowed, shutting off an important source of recent demand. During the 2022–2024 surge, net immigration averaged three million people per year. In 2025, that number fell to 400,000.⁵ While we expect a modest recovery in authorized and temporary flows, bringing immigration to 600,000 people per year in 2026 and 2027, overall immigration will remain a fraction of prior levels.

Taken together, these factors point to a period of below-trend household formation. Even in historically strong growth markets such as Phoenix, Atlanta and Dallas, we expect residential demand to moderate toward or below long-term averages.

Supply Outlook: COVID Winners Are Facing the Toughest Headwinds

Going forward, supply conditions are likely to remain the primary differentiator of rental housing performance across cities. Some multifamily markets are working through a supply wave that resulted from a surge in construction starts in the years before 2023. Starts have since collapsed, as higher interest rates made the economics of development less profitable.

This expansion has been uneven across markets. Developers added supply most aggressively in metro areas that experienced strong pandemic-era in-migration and faced relatively few regulatory constraints, resulting in wide dispersion in vacancy rates across cities. In our view, these markets are likely to continue to see elevated deliveries relative to other markets, which should keep vacancy rates elevated and delay rent recovery over the near-to-medium term.

A number of markets such as San Francisco, Chicago and New York have substantial physical or regulatory barriers to new construction, while others, like Minneapolis, have seen construction starts collapse. These cities have average vacancies today that are at or below their “structural vacancy rates,” or the vacancy level at which market rents grow in line with inflation. We expect these markets to see some of the highest levels of rent growth in 2027 and 2028.

Putting It All Together

Downshifting demand and uneven supply dynamics have created a complicated picture for investors. Some markets have stable rent growth and high supply barriers, but poor demographic traits. Others are experiencing elevated vacancy rates and weak rent growth, but with the promise of a strong recovery over the medium-to-long term.

The table below attempts to quantify these dynamics.

First, the table shows each market’s current vacancy rate compared to its structural vacancy rate. We show an estimate of when a given market is expected to return to its structural vacancy rate, given local supply-and-demand dynamics.

Next, we translate the vacancy outlook into forecasts for near-term Net Operating Income (NOI) growth, which incorporates changes in market vacancy, rent and expenses.

Next, we translate the vacancy outlook into forecasts for near-term Net Operating Income (NOI) growth, which incorporates changes in market vacancy, rent and expenses.

We apply cap rates for average A/A- quality assets to these cash-flow projections to produce an estimated 10-year internal rate of return (IRR) for each city that we believe is representative of current market underwriting.

In general, MIM prefers multifamily markets toward the top of this list, where our projected absolute returns are highest. Those markets exhibit a healthier vacancy profile today, have favorable prospects for near-term rent growth, and, as a result of those two factors, lower downside risk. Unusually, many of the markets with the strongest near-term rent growth prospects also trade at higher starting cash yields (cap rates)—the opposite of the typical pricing relationship — further boosting the return profile of healthier markets. We attribute this to the fact that many of the markets performing well today were underperformers in recent years due to slower demographics and are still being penalized by investors.

There are a small handful of markets like Orange County and New York City where our estimated IRRs are low, but vacancy and supply pipelines are also low, significantly limiting downside risk. While we don’t believe those markets offer the best absolute returns today, they may offer attractive risk-adjusted returns.

Alternatively, markets like Austin, Denver and Charlotte have a longer road to recovery, and while we believe the long-term prospects are strong, we think the right entry point may still be a year or two away so long as pricing stays where it is today. It’s possible, and even probable, that cap rates will not start increasing in those markets, and we do not believe investors are being compensated for the “catch-a-falling-knife” risk that a new equity acquisition carries today. For debt investors, however, those markets may already be at an attractive entry point for low- or moderate-yield debt investments.

Endnotes

¹ NCREIF Property Index, Q1 2026. Value-weighted unlevered total return for residential properties in calendar year 2021; the average annual return over 2016-2024 was 4.6%.
² Census.gov, Q1 2026
³ Aladangady, Aditya, David Cho, Laura Feiveson, and Eugenio Pinto (2022). "Excess Savings during the COVID-19 Pandemic," FEDS Notes. Washington: Board of Governors of the Federal Reserve System, Oct. 21, 2022, https://doi.org/10.17016/2380-7172.3223.
⁴ Kmetz, Augustus, John Mondragon, and Johannes Wieland. “Remote Work and Housing Demand,” FRBSF Economic Letter. Federal Reserve Bank of San Francisco, Sept. 26, 2022. https://www.frbsf.org/research-and-insights/publications/economic-letter/2022/09/remote-work-and-housing-demand/
⁵ Congressional Budget Office, “The Demographic Outlook: 2026 to 2056,” January 2026.

Disclaimer

This material is intended solely for Institutional Investors, Qualified Investors and Professional Investors. This analysis is not intended for distribution with Retail Investors.

MetLife Investment Management (MIM), which includes PineBridge Investments, is MetLife Inc.’s institutional investment management business. MIM is a group of international companies that provides investment advice and markets asset management products and services to clients around the world.

This document is solely for informational purposes and does not constitute a recommendation regarding any investments or the provision of any investment advice, or constitute or form part of any advertisement of, offer for sale or subscription of, solicitation or invitation of any offer or recommendation to purchase or subscribe for any securities or investment advisory services. The views expressed herein are solely those of MIM and do not necessarily reflect, nor are they necessarily consistent with, the views held by, or the forecasts utilized by, the entities within the MetLife enterprise that provide insurance products, annuities and employee benefit programs. The information and opinions presented or contained in this document are provided as of the date it was written. It should be understood that subsequent developments may materially affect the information contained in this document, which none of MIM, its affiliates, advisors or representatives are under an obligation to update, revise or affirm. It is not MIM’s intention to provide, and you may not rely on this document as providing, a recommendation with respect to any particular investment strategy or investment. Affiliates of MIM may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives) of any company mentioned herein. This document may contain forward-looking statements, as well as predictions, projections and forecasts of the economy or economic trends of the markets, which are not necessarily indicative of the future. Any or all forward-looking statements, as well as those included in any other material discussed at the presentation, may turn out to be wrong.

The various global teams referenced in this document, including portfolio managers, research analysts and traders are employed by the various legal entities that comprise MIM.

All investments involve risks including the potential for loss of principle and past performance does not guarantee similar future results.

For investors in the U.S.: This document is communicated by MetLife Investment Management, LLC (MIM, LLC), a U.S. Securities and Exchange Commission (SEC) registered investment adviser. Registration with the SEC does not imply a certain level of skill or that the SEC has endorsed the investment adviser.

For investors in the UK: : This document is being distributed by MetLife Investment Management Limited (“MIML”), authorised and regulated by the UK Financial Conduct Authority (FCA reference number 623761), registered address One Angel Lane 8th Floor London EC4R 3AB United Kingdom. This document is approved by MIML as a financial promotion for distribution in the UK. This document is only intended for, and may only be distributed to, investors in the UK who qualify as a "professional client" as defined under the Markets in Financial Instruments Directive (2014/65/EU), as per the retained EU law version of the same in the UK.

For investors in the Middle East: This document is directed at and intended for institutional investors (as such term is defined in the various jurisdictions) only. The recipient of this document acknowledges that (1) no regulator or governmental authority in the Gulf Cooperation Council (“GCC”) or the Middle East has reviewed or approved this document or the substance contained within it, (2) this document is not for general circulation in the GCC or the Middle East and is provided on a confidential basis to the addressee only, (3) MetLife Investment Management is not licensed or regulated by any regulatory or governmental authority in the Middle East or the GCC, and (4) this document does not constitute or form part of any investment advice or solicitation of investment products in the GCC or Middle East or in any jurisdiction in which the provision of investment advice or any solicitation would be unlawful under the securities laws of such jurisdiction (and this document is therefore not construed as such).

For investors in Japan: This document is being distributed by MetLife Investment Management Japan, Ltd. (“MIM JAPAN”), a registered Financial Instruments Business Operator (“FIBO”) conducting Investment Advisory Business, Investment Management Business and Type II Financial Instruments Business under the registration entry “Director General of the Kanto Local Finance Bureau (Financial Instruments Business Operator) No. 2414” pursuant to the Financial Instruments and Exchange Act of Japan (“FIEA”), and a regular member of the Investment Management Association of Japan and the Type II Financial Instruments Firms Association of Japan. In its capacity as a discretionary investment manager registered under the FIEA, MIM JAPAN provides investment management services and also sub-delegates a part of its investment management authority to other foreign investment management entities within MIM in accordance with the FIEA. This document is only being provided to investors who are general employees' pension fund based in Japan, business owners who implement defined benefit corporate pension, etc. and Qualified Institutional Investors domiciled in Japan. It is the responsibility of each prospective investor to satisfy themselves as to full compliance with the applicable laws and regulations of any relevant territory, including obtaining any requisite governmental or other consent and observing any other formality presented in such territory. As fees to be borne by investors vary depending upon circumstances such as products, services, investment period and market conditions, the total amount nor the calculation methods cannot be disclosed in advance. All investments involve risks including the potential for loss of principle and past performance does not guarantee similar future results. Investors should obtain and read the prospectus and/or document set forth in Article 37-3 of Financial Instruments and Exchange Act carefully before making the investments.

For Investors in Hong Kong S.A.R.: : MetLife Investment Management and PineBridge Investments operate through the following entities: MetLife Investments Asia Limited (“MIAL”), licensed by the Securities and Futures Commission (“SFC”) for Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) regulated activities, PineBridge Investments Asia Limited licensed by the SFC for Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) regulated activities, and PineBridge Investments Hong Kong Limited licensed by the SFC for Type 1 (dealing in securities) and Type 9 (asset management) regulated activities. Unless otherwise stated, none of the authors of this article, interviewees or referenced individuals are licensed by the SFC to carry on regulated activities in Hong Kong S.A.R. The information contained in this document is for information purposes only and it has not been reviewed by the Securities and Futures Commission. This document may also be distributed by certain PineBridge Investments affiliates acquired by MetLife Investment Management on December 30, 2025. For additional legal and regulatory disclosures including other cross border information, please refer to https://www.pinebridge.com/en/regulatory-disclosure.

For investors in Australia: This information is distributed by MIM LLC and is intended for “wholesale clients” as defined in section 761G of the Corporations Act 2001 (Cth) (the Act). MIM LLC exempt from the requirement to hold an Australian financial services license under the Act in respect of the financial services it provides to Australian clients. MIM LLC is regulated by the SEC under US law, which is different from Australian law.

For investors in the EEA: This document is being distributed by MetLife Investment Management Europe Limited (“MIMEL”), authorised and regulated by the Central Bank of Ireland (registered number: C451684), registered address 20 on Hatch, Lower Hatch Street, Dublin 2, Ireland. This document is approved by MIMEL as marketing communications for the purposes of the EU Directive 2014/65/EU on markets in financial instruments (“MiFID II”). Where MIMEL does not have an applicable cross-border licence, this document is only intended for, and may only be distributed on request to, investors in the EEA who qualify as a “professional client” as defined under MiFID II, as implemented in the relevant EEA jurisdiction. The investment strategies described herein are directly managed by delegate investment manager affiliates of MIMEL. Unless otherwise stated, none of the authors of this article, interviewees or referenced individuals are directly contracted with MIMEL or are regulated in Ireland. Unless otherwise stated, any industry awards referenced herein relate to the awards of affiliates of MIMEL and not to awards of MIMEL.