As we reach the midpoint of 2025, multifamily investors are gaining a clearer view of the market, which is beginning to show signs of stabilization and growth. With interest rates easing and a significant supply gap starting to emerge, the second half of the year presents a unique window of opportunity. For investors positioned to act swiftly, this period is one of the most favorable in recent years, offering the potential for strong returns in an evolving market landscape.
Whether you’re expanding a portfolio or preparing to enter the space, understanding the key macro and micro trends is essential to staying ahead of the curve.
How Lower Interest Rates Unlock Better Financing Opportunities for Investors
As interest rates begin to stabilize and gradually decline, rate locks are becoming an essential tool for multifamily investors looking to secure favorable financing. The easing of rates, particularly following the Federal Reserve’s recent actions, has unlocked better financing opportunities, making it easier for investors to access capital at more attractive terms. Rate locks, which allow investors to lock in interest rates for a predetermined period, are particularly valuable in this shifting environment. They provide a layer of protection against any potential future rate increases, ensuring that investors can secure financing at today’s lower rates. With lenders easing underwriting standards and an influx of capital from increased GSE caps, these favorable financing conditions are creating a window of opportunity for those who are well-positioned to take advantage of them. By leveraging rate locks, investors can reduce uncertainty and move forward with confidence, knowing that their financing costs are locked in at competitive levels. This strategic tool is crucial for navigating a recovering market, where lower interest rates are unlocking new possibilities for growth and investment.
According to a recent investment forecast by Marcus & Millichap, this reduction returned the target lower bound of the federal funds rate to 4.25 percent and helped reopen yield spreads for investors. With cap rates averaging around 5.9 percent, significantly above 2022’s lows, deals are once again penciling out.
“Every investor I know goes, ‘Man, I should’ve bought more when cap rates were up,’” said John Chang, Chief Intelligence & Analytics Officer of Marcus & Millichap, during an episode of Wealth Unfiltered.
Financing liquidity is also improving, with lending activity gaining momentum as banks ease underwriting standards, and the Government-Sponsored Enterprise (GSE) caps have been increased to $146 billion for 2025. This influx of capital is set to accelerate transaction volume, particularly as investor confidence continues to recover. For investors, this matters because increased liquidity and more accessible financing options provide greater flexibility and opportunity in the marketplace. With more capital available and more favorable lending conditions, investors can take advantage of opportunities that may have previously been out of reach. The improved lending environment not only facilitates quicker and more efficient transactions but also lowers the overall cost of borrowing, thereby enhancing the potential for higher returns on investment. As the market continues to stabilize and financing conditions improve, investors are positioned to capitalize on favorable terms and maximize the value of their portfolios.
Slow construction is tipping the supply-demand balance in Real Estate
Another major factor influencing the 2025 landscape is the severe shortage of new multifamily supply. The sector is now feeling the impact of a 24 percent drop in multifamily permitting over the past two years, which will affect deliveries through 2027.
This tapering in completions, combined with rising household formation and affordability challenges in the single-family market, is expected to push vacancies down and reignite rent growth. Forecasts suggest modest rent increases of 3 percent for 2025, and note that net absorption is projected to align closely with new deliveries for the first time in four years.
As developers hold back and demand strengthens, especially in Sun Belt and Midwest metros, existing multifamily properties are positioned for stronger leasing performance and reduced concessions.
Gen Z & Millennials are shaping the future of multifamily housing
Demographic trends have long been a key driver of demand in the multifamily real estate sector, and today, shifting generational behaviors are playing an increasingly significant role in shaping the market. The aging millennial cohort, now entering their prime earning and family-forming years, alongside the rising number of Gen Z renters, are influencing both where and how multifamily investments perform. These groups are prioritizing different amenities, locations, and living environments than previous generations, creating new opportunities and challenges for investors. As millennials continue to seek larger homes in suburban areas while Gen Z gravitates toward urban environments with more affordable, flexible options, understanding these evolving preferences is crucial for identifying profitable multifamily investment opportunities in a dynamic market.
“You’re getting about 4,400 Gen Zs turning 22 every day. That’s going to be a positive driver for the urban apartment demand across the country,” said Chang.
This demographic continues to prioritize flexibility and access to urban living, while affordability barriers delay homeownership. High-growth metros like Dallas, Phoenix, Orlando, and Charlotte are experiencing notable in-migration and household formation, which aligns with the preferences of younger generations.
Investors Pivot Strategies to Target High-Growth Markets
In 2024, private buyers dominated activity in the sub-$10 million range, taking advantage of favorable market conditions. However, as we move into 2025, institutional investors are expected to re-engage, bringing increased competition to the multifamily sector. With this shift, investor focus is narrowing to regions and asset types that exhibit the strongest fundamentals—those with stable tenant demand, solid cash flow, and long-term growth potential. As competition intensifies, understanding the key factors that drive performance in these high-potential markets will be crucial for investors looking to secure profitable deals in an evolving landscape.
Expect a greater focus on:
- Tertiary markets with solid rent-to-price ratios
- Value-add assets offering short-term upside
- Cities with strong employment and population trends
According to John Chang, “this could be a unique investment opportunity, especially when we reflect on it five years from now,” if you “locked in pricing when cap rates were elevated.”
Why the Outlook for Multifamily Real Estate Remains Strong Through Year-End
With capital markets stabilizing, a limited pipeline of new supply, and declining affordability for homeownership, multifamily real estate remains well-positioned for long-term performance.
Recent analysis from J.P. Morgan supports this trend. Their midyear outlook projects that the single-family housing market will remain subdued through the end of 2025, with home price growth expected to stay under 3 percent. Inventory constraints and elevated mortgage rates are discouraging buyers and keeping many households in the rental market. For multifamily investors, this creates a reinforcing demand cycle. More renters, fewer concessions, and rising occupancy can lead to stronger cash flows and improved asset performance.
Although some risks remain, such as regulatory changes and rising operating costs, the sector’s structural fundamentals remain unchanged. The key is acting with clarity while others are still hesitant.
Multifamily investing in 2025 is not just about timing the market; it’s also about understanding the fundamentals. It is about understanding where the opportunities lie and why they are emerging at this time.
Want deeper insights on multifamily trends in 2025?
For more expert perspectives on the trends shaping multifamily real estate, including how interest rate cuts, supply shortages, and generational shifts are transforming investor strategy, tune in to the full Wealth Unfiltered episode featuring John Chang.
Learn how investors are adapting their approach in 2025 and hear why now may be the most strategic time to grow in multifamily real estate.
Watch the full conversation on YouTube:
https://youtu.be/NauGZHFQwew?si=koeDCKEvO0XyTv2-
