Freddie Mac forecasts multifamily originations to rise in 2025, projecting volumes between $370 billion and $380 billion alongside a modest 2.2% rent growth and a vacancy rate increase to 6.2%, according to Freddie Mac's newly released Multifamily Outlook.
The report indicates that while demand for multifamily units remains strong, record-high supply and volatile interest rates through the end of 2024 suppressed market fundamentals. Property values faced downward pressure due to elevated interest rates. Despite these short-term pressures, Freddie Mac anticipates multifamily will continue to perform well in the long term due to demographic support, economic strength, and limited alternative housing options.
Sara Hoffmann, senior director of Multifamily Research at Freddie Mac, noted that while demand has remained strong, new supply is at its highest level since the 1980s, especially in Sun Belt and Mountain West markets. These areas are expected to experience weaker performance due to oversupply, while smaller secondary markets in the Sun Belt and larger coastal and gateway markets are projected to perform better in 2025.
Freddie Mac forecasts rent growth of 2.2% and vacancy rates rising to 6.2% for 2025. The combination of modest rent growth and higher vacancies results in a forecasted gross rental income growth of 2% for the year.
Interest rates remained high and volatile as 2024 concluded, contributing to a compressed cap rate spread below the long-term average. Property values continued to decline but at a slower rate. Multifamily origination volume is projected to reach $320 billion in 2024 and increase further to a range of $370 billion to $380 billion in 2025. Image: Multifamily Permits, Starts and Completions (5+ Units) / Freddie Mac, Census Bureau, Moody’s Analytics
