Continental Properties’ Lybik on “Historic” Shift in Multifamily 

The U.S. multifamily market is experiencing one of the most dramatic shifts in recent memory—and the implications for owners, investors, and developers are profound. After eight consecutive quarters of oversupply and rising vacancies, demand has roared back with unprecedented strength. According to Jay Lybik, Senior Director of Market Research at Continental Properties, national absorption reached 794,000 units over the past year, eclipsing even the pandemic’s peak. Vacancies have dropped to 4.3%, reversing years of softness, even as economic uncertainty and tighter capital markets persist.  

Behind the numbers are powerful demographic forces, with first-time household formation accelerating as young adults leave their parents’ homes and renting emerges as the dominant choice. Yet challenges remain: a 500,000-unit surplus in the Sun Belt continues to weigh on rents, while the Midwest quietly leads the nation in rent growth. With deliveries expected to fall nearly 30% this year and new starts at their lowest since 2015, supply pipelines are tightening just as demand surges—reshaping pricing, investment, and development strategies.  

Lybik breaks down what’s driving this inflection point, where regional opportunities are emerging, and what investors should expect as multifamily enters a new phase of the cycle.   

CM: You’ve called the current shift in multifamily “historic.” What makes this moment so pivotal compared to prior cycles? 

JL: That average annual demand has been significantly higher than experienced in past cycles over the past five years. From 2015 to 2019, a period viewed as a strong multifamily cycle, demand averaged 301,000 units a year. If the demand forecast holds for the rest of this year, the 2021 to 2025 annual demand period will average almost 400,000 units a year and that includes 2022 which saw 122,000 units of negative demand.  

CM: National absorption hit 794,000 units over the past year, surpassing even the pandemic record. What were the main drivers behind this surge in demand? 

JL: A stable economy has been a huge assist in the demand surge. Even though employment additions have slowed over the past four years after hitting 7.2 million jobs in 2021 and then only 2 million in 2024, the rate of growth has been enough to absorb the expanding labor force. In addition, layoffs have been minimum. Companies want to hold on to their employment base to ensure continued output without interruption even in the face of tariff uncertainty. These factors have helped create an environment of economic confidence for newly formed households and the majority of these are choosing to rent.   

CM: Vacancies have retreated to 4.3% despite capital market headwinds. How sustainable is this demand recovery given broader economic uncertainty? 

JL: Economic uncertainty is typically seen as a sign of potential pullback in multifamily demand, but uncertainty can also make some households choose renting as a safer housing option. Regardless of what happens economically, however, demand will moderate in the coming quarters because it can’t maintain the record pace of the past year. But moderation of demand doesn’t mean that the current multifamily growth cycle is coming to an end. 

CM: What role is demographics playing in this shift, particularly first-time household formation and young adults leaving their parents’ homes? 

JL: Demographics played a significant role in the record demand that has been posted. Going into the pandemic, the number of young adults (24 to 35) living with their parents was at the highest level since the Great Depression at 20%. By 2023, that number had declined to 17.7%. Many of these young adults that left their parent’s home felt confident enough in their financial situation to go out and sign that first lease and that’s evident in the demand over the past year. As a matter of fact, the Millennial generation has had 8 million fewer households formed compared to when the Baby Boomers came of age. Thus, there remains a continued tailwind from the Millennial generation for multifamily demand much longer than many would have expected.   

CM: The Sun Belt is still dealing with a 500,000-unit surplus. How do you see this overhang affecting rents and investment opportunities in that region? 

JL: Rent growth in many Sun Belt markets will most likely remain negative until the second half of 2026 as the excess supply gets absorbed and those markets move towards equilibrium. Once these markets hit positive rent growth this could very likely cause an uptick in dispositions as owners see an upside in valuations and investors feel more confident in deploying capital into these markets.  

CM: Conversely, the Midwest has emerged as a rent-growth leader. What’s fueling its strength, and do you expect it to continue? 

JL: Because the Midwest didn’t see the acceleration in new construction as witnessed in the Sun Belt, markets remained either in or close to equilibrium. Thus, when demand surged so too did rent growth. As demand moderates, Midwest markets will likely see rent growth temper but remain above their long-term averages given the tighter vacancy rates that will likely continue.  

CM: Deliveries are expected to fall 28% this year, with new starts at their lowest since 2015. What does this mean for supply pipelines and pricing power going forward? 

JL: Deliveries should continue to decline into 2027 which will give oversupplied Sun Belt markets the opportunity to soak up the excess supply and begin pushing down vacancy rates to more balanced levels. This in turn will allow market rent growth to stop the negative growth and return to a positive trajectory.   

CM: For investors, what signals should they be watching to time re-entry or expansion in the multifamily space? 

JL: Sustained rent growth acceleration in overbuilt markets would be a good sign to watch for in the markets currently experiencing negative rent growth.  Investors then should feel more comfortable with projecting positive rent growth in their underwriting.  

CM: Looking ahead to 2026–2027, do you expect this demand-supply imbalance to reset rents and valuations across the sector?  

JL: Yes, with demand projected to outstrip supply in most Sun Belt locations over the next two years, this will go a long way in restoring both national and those over supplied markets’ rent growth to healthier positive long-term averages. Additionally, that will support investors’ projected future rent growth and improve confidence in valuation calculations going forward.