New 2025 & 2026 Rent Growth Prediction (A BIG Bounce Back?)

Dave:
Housing prices are cooling, will rents now follow suit or could rent growth start picking up and actually start driving cashflow potential up at the same time. Today on the market, we’re digging into the latest news and transit in the rental market that investors need to be aware of. Hey everyone, it’s Dave back with another episode of On The Market. We spent a lot of the last few weeks talking about housing prices, mortgage rates, the trade war and all that major headline stuff. But as investors, we really need to know and stay on top of what’s really happening in the rental market as well. And this is probably obvious, but this is where most of us as real estate investors, unless you’re a flipper, are generating our revenue. It also helps us understand and helps us make decisions about how to manage our existing portfolio. And it also tells us what deals we should be buying because rent, at least as I see it, is one of the big upsides right now because if prices start to flatten and rent grows, that means better cashflow potential.
So we really need to understand where rent is today and where it might be going. And so today we’re going to do that. We’re going to talk about everything rent, we’ll talk about the big trends that are going on and where we stand today. We’ll talk about the differences between single family rentals and commercial real estate rents because they’re super different right now and they might move in different directions going forward. We’ll talk about some regional trends and then of course we’ll talk about forecasts looking forward. Let’s get into it. All right, first things first, let’s just talk about what’s going on. Big picture here. What’s happening with national rent growth? This will probably not come as a surprise to many of you, but we’ve been in a period of pretty slow or sometimes even negative rent growth depending on the subsection of the market that you’re looking at.
And when rent slows down or it goes backwards like we’ve seen in the last couple of years, it makes investing particularly hard because we know housing is very unaffordable, prices are up a lot, mortgage rates are super high, and so that makes the entry price to buy an asset really high. And that’s okay. It’s okay if prices go up as an investor, if rents keep going up because your cashflow keeps pace or if you lock in your debt, maybe your cashflow and profit actually go up. But this combination of low housing affordability and slow or lagging rent growth’s just a really tough situation for real estate investors to be in. And so just to give you an idea of where we are right now, most sources for data and speaking of sources, rent data is kind of all over the place. There’s just every data source you look at is a little bit different.
So I’m going to use a couple of different sources today, but basically what I try and do is look at all of them and sort of figure out the signal from the noise and figure out the big picture trends, aggregate them all. So just as an example, Zillow right now is saying that prices as of March, 2025 are up 0.6% month over month and are up 3.5% year over year. Seems pretty reasonable, right? There are a lot of other examples that do this as well. Meanwhile, realtor.com just said that they had their 20th straight month of year over year rent declines with the median rent price going down 1.2% year over year. So just keep that all in mind as we’re talking about these things. But when I look at all the data sources, which I do, I would call this a pretty flat rent market, both for single family homes and for multifamily.
If you want to really dig in, multifamily might be down about 1% year over year. Rent growth might be up 1% year over year, but for the most part we’re just seeing pretty laggy rent. And if you’re owned an existing property, you probably see this in real time that you’re probably not able to drive up rents in the way that you do during normal times. And definitely it’s a lot slower than what it was like during the pandemic. And we’ve talked about this a bunch of times on the show, but let’s just recap why this is actually happening. There are a couple of reasons, but the main reason we’re seeing this is because there is just a massive supply glut there. It was during the pandemic a huge boom in specifically multifamily construction. We see this a lot in the southeast across the Sunbelt in a lot of popular markets like Denver or Boise, Seattle, California, all of these markets have seen just enormous growth in the number of multifamily buildings that went under construction in the 20 21, 20 22 timeline when demand was super high and it was super cheap to borrow money for these types of deals.
Fast forward to today, obviously we know that things have gotten more expensive, but multifamily projects take years. They can take years to permit and to get approved then to take years to build. And so from about the beginning of 2024 to now and going into the next couple months still we’re just seeing all of that construction actually come online. All of these units that have been built are now getting put on the market and even though there’s still some demand for them, you can’t just flood a market with all these units at once. There’s not going to be enough renters who are looking to move or find a new apartment all at once. And so that drives down rents when this happens. There’s too much supply for the amount of demand. Landlords, property managers, they have to compete and the way that they compete is by lowering prices.
And so that’s why you see multifamily down more than single family rents, but it does spill over because you have to imagine that if you’re a renter and you are looking for an apartment, if all of a sudden brand new apartments are way cheaper, even if you want a single family home, maybe you consider going to that brand new apartment. It’s got the nice gym and the parking lot and all these great amenities, and that can sort of why it spills over into the small multifamily market and into the single family market as well. So that’s sort of the big picture with prices. But I also just wanted to mention that technically sort of logistically how this happens, because a lot of people say, oh, there’s flag glu. Why do rents actually go down? Well, there’s sort of this intermediary step where vacancies go up because there’s too many apartments, not enough people.
You start to see the number of occupied units decline. And I’ve been looking at this and basically we’re seeing a pretty big increase in vacancies across the country. And so this is a big problem for property managers. I think once you’ve been in the real estate business for a while, you learn that vacancies actually what kills a lot of deals or at least kills your performance in any given year because yeah, maybe you want to push up rents 50 bucks a month, but if you have one month of vacancy because of that, and let’s say your rents are already 1500 bucks a month, you’re going to lose 1500 bucks only to gain $600 a year. And so that actually winds up crushing you. And so instead of taking on those vacancies, people just lower their prices. And what’s kind of amazing about this is that vacancy is going up all across the country and it’s not just those super hot markets, it’s definitely higher in those markets, but this is going up pretty much everywhere.
I’m looking at this chart right now that shows sort of where occupancy is right now. And occupancy is just basically the inverse of vacancy, just how many units are filled. And in almost every market the average is something like 96, 90 7%, but across the country we’re seeing it closer to 93 or 94%. And I know that doesn’t sound like some huge difference, but it does matter. It does spill into the rest of the market and that’s why rents are down. Just as an example, Denver, which is a city I invest in and has been hit pretty hard, their normal occupancy rate is 95%. So at any given time over the last several years, decade or so, 95% of apartments in Denver are occupied. That’s now down to 94%. So that is not a huge drop, but it does make a meaningful difference. If you look at a place like Orlando, typically it’s 96% occupied.
It’s also dropped down to 94%. And so these 2% declines. It doesn’t sound like a lot, but do you think there’s a coincidence that there’s a one or 2% decline in rents in some of these markets? No, this is exactly how it happens. There’s too much supply. Vacancy goes up, people drop their rents to avoid vacancy, and we see rents go down. That’s what’s been happening. And I just want to point out that in this conversation so far about why this is happening, what is going on with rents? I haven’t really been mentioning demand, and that’s on purpose because demand is still pretty high. We’ve seen pretty good household formation over the last couple of years. I do think if we go into a recession could drop off, but demand has been relatively stable. It’s just that there’s too much supply. And I’m bringing this up because I do think that is really going to matter going forward because the first step obviously is understanding why this is happening and we can then base our predictions or expectations for the coming years based on this cause of this slowness and how we can potentially alleviate that slowness.
Before we move on and talk about some of the regional differences going on, and then the forecast, I just want to mention, I’ve been talking a little bit about commercial and multifamily and then the difference between single family and residential. I just kind of want to explain that a little bit. It will matter going forward. And when I do my forecasts going forward and talk about regional differences, I’m sort of going to differentiate between multifamily and single family on purpose because they’re just a little bit different. So commercial multifamily is generally considered anything that is five units or bigger, and that’s because these types of buildings are basically just built for investors. No single family homeowner really wants to own a 10 unit building unless they plan to operate it like a business, whereas four units are fewer are considered residential. That’s because some people, whether you’re a house hacker or someone like me who just likes buying 1, 2, 3, 4 unit properties, these are places where you theoretically could live as a primary residence and maybe just you happen to rent out a couple of properties.
And this is really important for intent. It also matters a lot for financing. That’s not super important for a topic today, but you should just know that they are different for those reasons. And the dynamics between these market, it might sound similar, right? You’re like, oh, they’re both real estate, commercial and residential. Are they the same? No, they’re definitely not the same. They don’t perform the same. The dynamics are different. Just think about the last few years, residential home prices have continued to go up since 2022. They’ve gone up 2, 3, 4, 5% over the last couple of years. Meanwhile, commercial multifamily has dropped like 15% in pricing. So obviously we could see these two markets work very differently, and this is true in rent. They are a little more aligned like I said before because there’s this kind of spillover. But the main thing I want you to know is that the supply dynamic that has caused the drop in stagnation in rents exists in multifamily, but does not exist in residential real estate, at least on a national basis. There are some cities and municipalities that have done a good job building single family homes and are building residential, but generally speaking, the glut that is causing all of this isn’t multifamily, and that’s just important for understanding what comes next in the next couple of years. I’m going to get into that and a couple of regional differences that are really important to note, but first we have to take a quick break. We’ll be right back.
Welcome back to On the Market. I’m Dave Meyer and I’m here talking about some of the big rent trends that all investors should be paying attention to. So far we’ve talked about the big picture that we’re in sort of this flat market that’s been caused by a glut of supply specifically in the multifamily space. Before we move on to what happens next, I just kind of want to talk about some regional differences in the market. Like I said, recent data shows us single family rent. Growth has slowed overall, but there are definitely still some markets that see pretty significant increases. So what you see, and you probably won’t be surprised by this, is that the areas where we are seeing the fastest rent growth are primarily in the northeast, the Midwest. And there are some places on the west coast, some expensive markets in the west as well.
And so according to CoreLogic, we actually see San Francisco as the highest with 6.2% year over year. Then we have two Tucson, Arizona Honolulu. After that, we see more regional trends like you see New York and Boston up there both near 5%. We see Detroit, we see St. Louis, we even see Seattle. And I think what’s really important here is that even more than the regional differences, it’s actually driven by where there has been less building over the last few years. I don’t think it’s a coincidence that we are seeing rent grow in the places where developers weren’t that excited about building over the last couple of years. We saw places like, I don’t know, I’m going to pick on Dallas or Tampa or even Raleigh or Nashville. These places have super strong real estate fundamentals and developers, people who build multifamily properties aren’t dumb. They see this and they’re like, I want to go build multifamily there because there’s going to be huge demand for housing.
And they’re not necessarily wrong about that. They just all decided to do it at the exact same time. And even though there is good long-term growth prospects for these cities, having everything hit the market all at once isn’t great. And so actually what we’re seeing is rent is growing in the places that weren’t exciting for developers. For example, building in San Francisco is really hard. No one wanted to build there over the last couple of years. And so as a result, supply has stagnated, vacancies have remained low, and that means that rents go up. We see them go up 6.2%. Think about the dynamics in these other markets that have high rent growth. Right now, New York, Boston, San Diego, they all have high cost of building land is super expensive, and so people don’t build as much. Look at Detroit, Michigan. They don’t have population growth in the same way that Nashville does, and so people don’t want to build there, but there is still demand growth.
And so if there is still some demand growth and there’s always attrition of some buildings going out of commission and there is no new supply, rents will go up. That’s happening in Detroit, that’s happening in St. Louis right now. So that is the main trend. And again, I’m just looking at this in CoreLogic when I look at some of the other sources, I see other Northeast Midwest markets like Hartford, we see Cleveland, Chicago, Indianapolis. Those are sort of consistently up there as some of the fastest growing markets. Meanwhile, when we look at the places where we were seeing the biggest declines in rent, it’s where people grew the most. And this is true even for single family homes. So it’s places like Raleigh Durham or Austin, Texas or San Antonio, Texas, not necessarily all of them are negative, but they are seeing the slowest rent growth.
And again, this is really just because of the supply and demand dynamics, but generally speaking, across most regions, rents are still up. There are very few markets where single family rents have declined. That is different. When we start to look at the multifamily situation going on. So I’m switching sources here to Freddie Mac. What they show is that when it comes to multifamily, there are many markets that are declining. You look at places like Austin, Texas, Aurora, Colorado, Denver, Colorado. We see this in places like Orlando. Rent in multifamily specifically is really starting to drop. We’ve also seen this in places like Phoenix. Again, these are popular places to live where there is a lot of demand and there has been a lot of building. If we look at the opposite, where is multifamily actually growing? And that’s harder to find these days where there’s real significant rent growth in multifamily above the pace of inflation.
It’s places like Oklahoma City, new Orleans, Albuquerque, Chicago, Baltimore. Those are the top five according to Freddie Mac. Those are not, don’t even lie. No one thought you wouldn’t have picked any of those markets out of the top five if you don’t listen to the show and weren’t thinking about it because they’re generally not seen as these hot sexy markets where every investor wants to be. But right now, that is actually what’s working because landlords haven’t had to compete with all this new supply. Alright, so that’s a quick look into some of the regional differences that are going on. And obviously I can’t mention every single city out there, but I would recommend if you want to know what’s going on in your city, you can Google this. You could put into chat GPT. But as I said about rent sources, if you want to do this yourself, I would look at a couple of different rent sources.
Look at Zillow, look at Freddie Mac, look at the census, [email protected] apartment list and just get a sense for what people are saying because each data source, they just collect the data really differently. It’s not like I don’t really think anyone’s trying to manipulate the market. It’s like some people look at only new leases, some people look at existing leases, some people look at same property changes. So I really recommend not just taking one data source and taking it as gospel or truth, but just to look at a couple of different sources and use that to triangulate what rent is doing in your particular area. So that’s where we are, but let’s shift the conversation to where we’re going because investors probably care about that more. We do though have to take one more quick break. We’ll be right back.
Welcome back to On the Market. I am here talking about rents. Let’s get into our forecast going forward, and I will give you my personal take on where I think rents are trending. Most forecasts, again, I’m looking at a lot of sources. If I had to triangulate them all and give you an aggregation, I’d say that most forecasts call for continued rent growth, but it is going to be below average rent growth. So normally in a given year we see rent grout 3%, maybe up to 4%, somewhere above the pace of inflation. But when I average out all the forecasts that I think are credible, we get growth about 2.2 to 2.3% nationally. That’s not bad. That’s still going up. If you have a fixed rate mortgage, you’re still pretty happy. Your payment is staying largely the same and you are getting more rent. But I think it’s important to note that that is below average, and it’s also important to note that is below the pace of inflation.
As investors, we want our spending power to at least keep pace with inflation and we’re, it’s very close to the pace of inflation. That’s what the forecasts say. Personally, I think it’s a little too optimistic. I don’t think rents nationally are going to go up 2.2 to 2.3%. I see this in my own portfolio. It is getting harder to raise rents, and honestly, I haven’t really tried to raise rents this year because I just rather keep my good tenants. There’s a lot of data that shows that consumers are starting to struggle and I’d just rather have a good tenant who’s happy and able to pay my rent than try and raise it 2%. At the end of the day, that’s not really going to make this huge difference to me. So I would rather avoid those vacancies like we were talking about. I again, could it go up two and two and a half percent?
Sure. I just think in my own understanding of real estate, as I underwrite deals and I’m still looking at deals, I just don’t think it makes sense to forecast rent growth. When I analyze a deal, I’m basically saying that rent is going to be flat at least for the next year or so. When I look at the supply issues, I think they’re going to continue. One of the great things about multifamily data is we know how many units are in the pipeline and we know that they’re still coming online. That’s been going on, but I actually think demand is going to slow. And I know different people think different things about a recession or a slowdown. I don’t know if we’re technically going to be in a recession at any point, but I look at the data and I think American consumers are hurting. We just saw student loans, collections, resume.
We are seeing credit card debt and delinquencies start to rise. Wage growth is starting to slow. The labor market still pretty good and inflation is still pretty good, but those things may change in the next couple of months. And so I think demand is going to slow at a time where supply is still relatively high, and I don’t think this is causing any kind of crash, but I don’t think we’re going to work our way through the supply glut in the next month or the next two months or the next three months. And I know a lot of people in this industry have said, first half of 25 is going to be rough, then it’s going to get better. I never said that. I’ve long said that. I think 26 is when rent growth really starts to get better, at least across the majority of markets.
Some markets might get better in the next couple of months, but for me, I just am more comfortable looking at deals, assuming not the worst case scenario, but being kind of pessimistic these days. I just don’t really see a reason why you should stretch and assume rent growth in the next year when it’s very uncertain. I’d rather say, Hey, I think things are going to be flat, and if I’m wrong, maybe all these forecasts and economists are right, and rents actually do go up two to 3%, then that’s great for me because I made a deal pencil with 0% rent growth and it actually wound up going to two to 3%. That’s all upside for me. So that’s sort of where I see the next year or so going. And I think that we’re going to see similar regional trends. We’re probably going to see rent growth strongest in the Northeast and Midwest.
I do think some of the Southeast markets will turn around, but I think the Southeast is probably where most of the declines are going to be concentrated in the next year or so. But I want to make a clear distinction here for what I think rent is doing in the next year, which again, I said is going to be kind of weak for what I think is going to happen long term because eventually the current supply gut is going to get absorbed, and we’ve already seen that new construction starts are slowing down. They’ve really started to come down. For example, projected completions are going to drop in 2024. There was 533,000 units built in 2026, so just two years later, they’re expecting that to drop by more than half to just 250,000. And so yeah, we still oversupply now, but the pendulum may very well may swing in the other direction, and we may actually go to a undersupply, right?
You’ve probably heard a lot of people talk about this. My friend Scott Trench, who’s been on the show many times talks about this. Grant Cardone I saw recently predicted that rents could explode in 2026 as supply dries up and demand remains strong, and even yours truly have agreed with this. I believe that if rent demand holds relatively steady, and again, I think there might be a short term slowdown demand in the next couple of months, but I think that will pick back up again. I think in the next year or two, vacancy rates could drop relatively quickly. That could push rent growth back up above historical averages. So that’s my take. Again, short term, I’m not counting on any rent growth, but long-term, one of the reasons I’m still buying real estate right now is I do think that rent long-term, it always has kept up with inflation, and that is going to resume.
And so if you can buy a deal now when the market is kind of soft, but rent is going to grow into the future as it has always done, that is one of the main reasons I think real estate is going to continue to perform really well into the future. So that’s it. Be prepared for more flatness. Don’t forecast a lot of growth if you want to be conservative. But long-term, keep an eye out for opportunity because prices are declining right now in a lot of markets in terms of purchase price. So you could buy better deals right now, but there is a lot of opportunity for future rent growth, which could help you and boost your cashflow over the long term of your investments. If deals work now, they’ll likely be much, much better in the future. All right, that’s what I got for you guys today. Thank you so much for listening to this episode of On The Market. I’m Dave Meyer. I’ll see you next time.