It’s Here: This is the Freddie Mac Forecast, 2.5% Average Multifamily Rent Growth in 2024

December 20, 2023

Nationwide Rent Growth Expected to Moderate

According to Freddie Mac’s 2024 multifamily forecast, nationwide apartment rent growth is projected to increase by 2.5%—slightly below the annual average nationwide rent growth for the past two decades. However, certain regions, particularly those with high levels of new supply, may experience rent declines in the short term.

Despite record-setting new apartment deliveries, Freddie Mac remains bullish on long-term multifamily fundamentals, citing favorable demographic trends and the strong for-sale housing market as key drivers of continued rental demand.

New Supply Pressures Sunbelt Markets

The U.S. is experiencing its largest wave of apartment deliveries in decades, with 440,000 new units expected in 2024 and over 900,000 units currently under construction. As a result:

Rent Declines in Oversupplied Markets

As tracked by RealPage, markets that experienced the deepest year-over-year rent declines as of November 2023 include:

  • Cape Coral-Fort Myers, FL (-6%)
  • Austin-Round Rock, TX (-5.9%)
  • North Port-Sarasota-Bradenton, FL (-5.4%)

These declines are concentrated in markets that have expanded their apartment inventory by over 20% in the last five years.

Freddie Mac’s Soft Landing Prediction

Despite concerns over high supply levels and elevated interest rates, Freddie Mac predicts a “soft landing” for the multifamily sector.

“The economy appears to be on track for a soft landing, although it may be bumpy throughout next year.”
– Sara Hoffmann, Director of Multifamily Research at Freddie Mac

While high supply levels will put downward pressure on rent growth, Freddie Mac views multifamily real estate as a favorable asset class due to continued homeownership affordability challenges and strong long-term rental demand.

After demand went negative in the final months of 2022, early 2023 ushered in a demand rebound spurred by resiliency in the labor market. But high levels of new supply of rentals outpaced that demand, constraining rent growth and decreasing occupancy rates, especially in the Sunbelt.

Cyclical Trends Favor Secondary and Tertiary Markets

Multifamily rent cycles tend to be more pronounced in high-growth markets, with rents declining in metros that saw rapid increases over the last two years. For example:

  • Mountain West markets saw a 0.5% rent decline in 2023.
  • Sunbelt rents fell 1.3% over the same period.
  • West Coast markets experienced an 0.8% rent drop, largely due to rising vacancies and economic headwinds.

Meanwhile, Midwest and Northeast markets remain “Steady Eddy” and continue to see steady rent growth:

Midwest Real Estate Outperforms in 2024

With over 1 million units under construction, Freddie Mac expects flat to moderate rent growth nationwide in 2024 as markets like Phoenix, Nashville, Austin and Dallas struggle to absorb new supply. A softer labor market may also weaken demand in these markets compared to pre-pandemic employment levels. However, markets in the Midwest and secondary cities are expected to outperform due to:

  • Lower supply pressure compared to high-growth Sunbelt metros.
  • Stable job growth from reshoring and industrial expansion.
  • Higher cap rates (25-50 basis points higher than other regions), creating opportunities for positive leverage, as noted in CBRE’s 2024 outlook.

Freddie Mac and CBRE predict that Midwestern multifamily markets will offer some of the best investment opportunities in 2024, continuing a trend that has played out for nearly two decades.

The Midwest Remains an Attractive Multifamily Investment Market

Despite a record-setting wave of apartment deliveries, Freddie Mac’s outlook suggests that rental housing remains a solid asset class, particularly in markets with less exposure to oversupply.

With cyclical trends playing out, the Midwest and secondary markets remain best positioned for strong rent growth and investment opportunities in 2024 and beyond.