By Jeff Goll
The headlines on multifamily have not caught up to the data. After two years of being the asset class everyone wanted to disparage, the U.S. apartment market quietly began to rebalance in the first quarter of 2026.
New deliveries are collapsing, demand is returning faster than most forecasts expected, occupancy and renewal rates are improving, and the construction pipeline has thinned to a level that effectively guarantees a tighter market for years to come. For well-capitalized developers and operators with discipline and a low-cost basis, the setup is the most constructive it has been in a decade.
Fundamentals Turn Quietly
In our most recent quarterly letter to investors, we walked through the inflection underway in the operating data. RealPage reported effective rents up 0.38 percent in the first quarter, the first quarterly gain after two consecutive declines. National occupancy ticked up 11 basis points to 94.9 percent, holding near the 95 percent equilibrium level even as the industry continued to digest the largest delivery wave in over four decades.
Renewal rates rose to 56.1 percent, a full 260 basis points above the 10-year average of 53.5 percent and 80 basis points higher quarter over quarter. Residents are staying in place. Operators are recovering pricing power gradually, not violently, which is exactly how durable cycles begin.
Demand has been the surprise. The U.S. apartment market absorbed 93,277 units in the first quarter alone, one of the strongest first quarters of the past decade and roughly 44 percent above the 10-year average of 64,870 units. Over the 12 months that ended in March, the market absorbed 303,377 units. These units were absorbed against a macro backdrop that arguably should not have been constructive to multifamily demand.
Just 116,000 jobs were created in all of 2025, one of the weakest non-recession years on record, and the first quarter of 2026 tracked GDP growth of just 1.6 percent annualized per the Atlanta Fed. Despite the lackluster macroeconomic growth, apartment demand continued at an impressive clip.
Renters now account for roughly 80 percent of all U.S. household formation, according to Arbor, a publicly traded mortgage REIT and lender, a structural shift that has been building for years and is now visible in every leasing office in the country.
Supply Cliff Steeper Than Advertised
The supply side is changing faster than many models projected. Quarterly deliveries hit 75,205 units in the first quarter of 2026, a 53 percent drop from the late-2024 peak and one of the lowest quarterly tallies in seven years. Trailing 12-month deliveries of 357,921 units are now back in line with the 10-year average of roughly 350,000.
More importantly, what is in the pipeline behind those deliveries has collapsed. Units under construction stand at 552,135, down approximately 50 percent from the early 2023 peak. New starts in the first quarter totaled just 37,944 units, down roughly 76 percent from the first quarter 2022 peak, with CoStar putting the figure as low as 55,000 starts, the lowest quarterly level since 2011. Trailing 12-month starts have fallen to approximately 276,000 units.
To put that in context, industry estimates of long-term renter demand range from roughly 325,000 to 400,000 new units per year through the end of the decade. Building permit issuance in March was down 23.5 percent year over year, per the U.S. Census Bureau. RealPage has reported a measurable decline in developer inquiries for new project feasibility studies.
Capital is not coming back to ground-up development at the scale needed to fill this gap. Deliveries that are pulled forward by extending existing construction loans can mask the shortfall for a quarter or two, but the structural undersupply baked into the next two to three years is now mechanically locked in.
Affordability is a Durable Tailwind
The most misunderstood dynamic in this market is affordability. Headline rent indices have been negative for parts of the Sun Belt, and the media has run with the implication that renter economics are getting worse. The opposite is true.
Wage growth has outpaced rent growth for 38 consecutive months. The major public REITs — including Camden Property Trust, MAA and UDR — are reporting rent-to-income ratios on new move-ins of 19 to 20 percent, well below the long-run averages in the mid-20s. Camden recorded its lowest bad debt level since before the COVID-19 pandemic. The financial profile of the apartment renter has been improving even as the asset class went through one of its more painful supply absorption phases.
At the same time, the structural shortage of affordable housing remains acute. The Joint Center for Housing Studies at Harvard puts the number of cost-burdened renter households at 22.7 million, with cost burdens climbing the income spectrum.
Census data shows more than half of renters are cost-burdened in 12 states, led by Florida and Nevada, with Colorado, Georgia, and Arizona all reporting burden rates at or above 50 percent. These are the states where Hillpointe is most active. The need for new attainable rental product in these markets is structural, persistent and politically urgent.
Homeownership is moving further out of reach, not closer. The 30-year mortgage rate sits near 6.5 percent. The gap between owning and renting has widened by more than $1,000 per month for a typical apartment versus a comparable single-family home.
Realtor.com data shows homeownership among adults aged 25 to 34 has fallen to 30 percent, the lowest reading in the half century the data has been tracked. The renting stage of life is lengthening, not shortening, and that is happening to a generation that wants new product at a price point they can afford.
Construction Costs Have Built a Moat
Elevated construction costs continue to limit new supply. According to the Bureau of Labor Statistics, the costs of key construction materials, labor and other building inputs rose approximately 42 percent between 2020 and 2025, with labor costs up roughly 20 percent over the same period.
Recent producer price index data suggests inputs are reaccelerating in the wake of the 2026 Iran conflict and tariff-driven supply chain pressure. Cushman & Wakefield estimates current tariff rates will add another 6 percent to the cost of materials and 3 percent to total project costs versus a pre-tariff 2024 baseline.
The less-discussed point is what has happened at the distribution layer. Dealer-level prices for building materials have risen approximately 70 percent since 2020, far outpacing the 42 percent rise in underlying input costs.
Most developers buy through dealers. The effective cost of construction has therefore risen more than headline materials inflation would suggest, which means most projects that pencil out today do so only with rent assumptions that are aggressive relative to where in-place rents have settled.
We believe new starts will remain depressed not because developers do not want to build, but because the math does not work at the cost basis required to deliver new product. Existing assets bought at a basis materially below replacement cost will benefit from the resulting scarcity. This is the part of the cycle where basis discipline compounds the most.
Capital Markets Prove Resilient
The capital markets read is more constructive than the headline tape suggests. The Federal Reserve has held the federal funds rate at 3.50 to 3.75 percent through three consecutive meetings, and the 10-year Treasury yield has been range-bound between roughly 4 and 4.45 percent for a year. The path of rates from here is debatable, but rate movements have become less erratic, and that alone is enough to bring capital off the sidelines.
The Mortgage Bankers Association projects 2026 commercial mortgage originations will rise 38 percent year over year to roughly $805 billion, with multifamily representing the largest share of upcoming maturities at approximately 34 percent of the 2026 total.
The agency caps have expanded to $88 billion for both Fannie Mae and Freddie Mac. The headline CMBS multifamily delinquency rate of 7.15 percent reads stress, but the stress is concentrated almost entirely in loans originated at the 2021 to 2022 peak with negative leverage that never adjusted.
The loan portfolios of Fannie Mae and Freddie Maccontinue to perform well with delinquencies below 1 percent. Bank and life company multifamily exposure remains stable. The NMHC Quarterly Survey of Apartment Conditions in April showed improving sentiment across all four categories tracked, with the largest gains in availability of debt.
Transaction volume during the first quarter of this year was light. MSCI reported $30.3 billion in multifamily sales, down 45 percent from thefourthquarter. That was a positioning quarter, not a structural one. Broker feedback consistently points to deeper bid pools, more tour activity and a growing backlog of sellers approaching forced timing decisions on capital structures that can no longer be extended.
The combination of compressing dispersion in pricing, agency liquidity at expanded caps and a wave of forced sellers from 2021 to 2022 creates the cleanest acquisition window the asset class has seen since 2010. The buyer composition tells the same story. Private capital accounted for 69.2 percent of acquisitions in the first quarter of 2026, per MSCI, with cap rates settling in the mid-5s and newer-vintage product transacting in the 5 to 5.5 percent cap rate range.
Positioning for the Inflection Point
The combination of declining new supply, resilient demand and the reawakened capital markets creates a window where well-positioned operators have room to compound. When capital markets and operating fundamentals inflect at the same time, three things determine outcomes: cost basis, access to capital and execution.
Hillpointe is positioned to capitalize on this window. As one of the top-five multifamily developers in the country by units started, our vertically integrated platform spans development, construction, property management, materials sourcing and capital markets.
Our direct-to-manufacturer supply chain meaningfully reduces our exposure to the 70 percent dealer-level inflation that has weighed on other developers’ project economics, allowing us to deliver new product at a basis materially below replacement cost in a market where most new starts no longer pencil out.
With approximately 8,700 units under construction, around 12,000 units under management, approximately $1.7 billion in assets under management across five funds, and an active pipeline of roughly 15,000 units across 10 Sun Belt and Mountain West states, Hillpointe is well prepared to step into this opportunity.
Our focus has not changed. We see opportunity in workforce and attainable rental housing in markets where supply has collapsed and demand fundamentals remain intact.
Jeff Goll is managing director and head of capital markets for Hillpointe, a Winter Park, Florida-based multifamily developer.