Apartment Demand Outlook Shifts Amid Slower Formation

Apartment demand outlook shifts as slowing household formation outpaces job growth. Key Sun Belt, Midwest, and coastal trends revealed.

May 5, 2026

Jordan B.

Household formation is set to run about 40% below its 21st-century average this year.
Apartment absorption softened, with net relinquishments in late 2025 despite strong job markets.
Rent growth is diverging, strongest in tight coastal and Midwest markets, muted in high-supply Sun Belt metros.
Home sales and move-up activity remain constrained even as mortgage rates fall slightly.

Key Takeaways

Formation Slows, Demand Softens

Globe St reports that slowing household formation is reshaping the apartment demand outlook, with Marcus & Millichap data showing formation levels expected to reach 40% below the historical norm this year, despite strong job growth. Slower net migration and tepid 12-month hiring compound the dampening effect on rental demand. Apartment net absorption exceeded 90,000 units in Q1 2026, but nearly 10,000 units were relinquished in late 2025. National apartment vacancy held at 5.1% in March, just below average, aided by easing development activity.

Rent Growth Driven by Scarcity

The apartment demand outlook is increasingly shaped by market-specific supply dynamics. High-supply Sun Belt metros—such as Phoenix, Austin, Jacksonville, and Salt Lake City—led net absorption rates in Q1, but saw little vacancy reduction or rent gains due to inventory surges. Conversely, supply-constrained coastal and Midwest markets like San Francisco, San Jose, Chicago, and Milwaukee saw vacancies tighten into the three to four percent range and posted the strongest rent growth. These trends highlight scarcity as the key driver in select metros, amplifying pressure on affordability where supply cannot keep up.

For-Sale Market Shows Little Movement

Headwinds for household formation are also evident in the for-sale market. Lower mortgage rates have not boosted transaction volumes; March existing home sales and median prices were flat versus early 2025. Marcus & Millichap attributes the stagnation to homeowners’ reluctance to move after locking in pandemic-era rates below 3%. At the same time, slower job creation has started weighing on renter demand across several major apartment markets, adding another layer of pressure for owners navigating elevated supply. For multifamily investors, this stasis may help retain renters, but also limits the creation of new households and, in turn, future apartment demand. The apartment demand outlook for the near-term remains tied to these intersecting demand constraints.