Where Do We Go From Here?

An unfiltered look at the U.S. multifamily market in 2025, where instability, rising debt maturities, and investor caution collide with resilient demand and signs of stabilization.

 

The U.S. multifamily market is navigating a complex, transitional period, marked by both mounting pressures and promising opportunities. In a wide-ranging conversation that touched on multifamily investing, fiscal policy, and investor psychology, Capital Markets FVP and Director Clark Finney delivers an unfiltered assessment of the sector’s central challenge.

 

“Markets that are dependent on economics thrive in stability. And any level of marginal stability that people can count on will naturally increase transaction volume,” he says.

 

It isn’t interest rates or recession fears–it’s instability.

 

Instability continues to shape the multifamily landscape, as macroeconomic pressures—including elevated interest rates, persistent inflation, and a growing national debt—apply sustained downward force. The wave of upcoming debt maturities adds another layer of complexity, presenting both challenges for existing owners and opportunities for well-capitalized buyers.

 

Yet amid these headwinds, early signs of recovery are emerging. Capital markets, while still wary, are beginning to show increased liquidity and a gradual return of financing options. Meanwhile, resilient tenant demand and a rebalancing of supply dynamics have helped correct property values, with recent trends indicating that the sector may be approaching a period of stabilization.

 

“Stability, however incremental, is what will unlock value”, Finney adds.

 

PRE-COVID to Present: A Shift in Chaos, Not Clarity

Finney’s perspective on the multifamily market is both lived and learned. “I grew up in multifamily, literally in an apartment,” he reflects. Now entrenched in the capital markets as a broker, Finney has witnessed firsthand how volatility, fiscal and monetary policy, and investor psychology have redefined the sector’s landscape. “It’s been a treadmill,” he said of the post-COVID period, marked by surging yields, overleveraged bridge loans, and policy whiplash. “Progress? Maybe. But we’re still on edge.”

 

Now in 2025, interest rates remain elevated and erratic, a defining force in the commercial real estate market’s cautious posture. “The 10-year Treasury was 4.5% last year, and it’s 4.5% today,” Finney observed. “But the real shift has been psychological.” The industry has begrudgingly accepted a new normal, where buyers, sellers, and lenders have recalibrated expectations and started to transact, despite elevated borrowing costs.

 

The new normal, however, is anything but straightforward.

 

The Federal Reserve’s monetary policy has been a major influence on rate dynamics, driving the effective federal funds rate to 4.33% by May 2025 after an aggressive tightening cycle. While Fannie Mae forecasts a gradual decline to 3.9% by Q4 2025 and 3.1% by Q4 2026, the behavior of the 10-year Treasury yield has told a different story. Between September and December 2024, even as the Fed began cutting shorter-term rates, the 10-year Treasury yield rose from roughly 3.6% to 4.8% by mid-January 2025.

 

This counterintuitive movement, where long-term rates increased even as short-term policy rates fell, created a disconnect that further complicated financing conditions for commercial real estate. Investors demanded a greater yield to compensate for long-term inflation uncertainty, pushing commercial mortgage rates higher just as the market was hoping for relief.

 

Recent Treasury data reflects this volatility:

• Jan: 4.63%

 

• Feb: 4.45%

 

• Apr: 4.28%

 

• May: 4.5%

 

While Fannie Mae projects the 10-year to average around 4.3% through 2025 and 2026, with a modest drop to 4.2% in Q4 2025, many in the industry, including Finney, remain skeptical that rate stability is imminent.

 

Persistent interest rate turbulence has had a ripple effect, especially on loans originated during the lowrate years of 2020-2021. Many of these were shortterm, floating-rate deals that are now maturing into a much harsher environment. The result is a growing number of “performing matured” loans–deals past their maturity date but still active under extension agreements. Refinancing in today’s market is no easy feat.

 

“There’s no product out there that’s going to save some of these borrowers,” Finney admits.

 

Yet, he also sees a silver lining: this stress is giving rise to innovative structured finance solutions and creating openings for well-positioned buyers.

 

The market has finally accpeted that this is what it is. That mindset shifthowever reluctant–has at least brought some clarity. And clarity, even at higher costs, is better than chaos.

 

The Three Pillars of Progress: Expectation, Volatility, Equity

 

1. Expectation Management

 

After years of dislocation, buyers have adapted to underwriting deals with 5.5% coupons, and sellers have relinquished the dream of 2021-level valuations. “Nobody loves these numbers,” Finney admitted, “but at least we all know where we stand.”This alignment has injected some life back into originations and transactions. “There’s finally a shared baseline,” Finney says, “and that alone has brought people back to the table.”

 

2. Volatility in the Bond Market

Persistent rate volatility continues to paralyze confidence. “The 10-year Treasury is bouncing 20 basis points every other week,” Finney explains. “How can you close a 90-day deal when your cost of debt keeps changing?”

 

Indeed, long-term rates, critical benchmarks for 75-85% of all multifamily loans, remain erratic. “Even if people don’t love a 6.5% coupon,” Finney notes, “they’d rather that than a world where it might be 6.0% one day and 7.2% the next. Predictability, even when painful, enables action.”

 

3. Equity on the Sidelines

Despite headlines about “dry powder,” most investors aren’t deploying. “It’s not that the numbers don’t work, it’s psychological,” Finney emphasizes. “People are shell-shocked. They’re keeping cash in the bank, bracing for their kid’s tuition, a new car, or a 7% mortgage reset.” Even institutional investors are hesitant. “There’s barely any equity out there. Every deal we’re working on right now, even great ones, has an equity shortfall.” Finney attributes this to widespread risk aversion and a pervasive wait-and-see mindset, exacerbated by macroeconomic crosscurrents.

 

Inflation and the Erosion of Confidence

Inflation remains elevated, with the Consumer Price Index (CPI) now 13% above pre-COVID trends. Headline Personal Consumption Expenditures (PCE) inflation is forecast at 3.2% for 2025, revised upward due to persistent supply chain disruptions and the inflationary impact of new tariffs implemented earlier this year.

 

“Every time we feel like inflation is under control, something else throws fuel on the fire,” Finney says. “Whether it’s government spending or tariffs, it all finds its way into pricing and into people’s heads.”

 

This inflation dynamic has direct implications for multifamily owners: rising insurance premiums, property taxes, maintenance costs, and construction expenses. These all erode net operating income. At the same time, tenants’ rent thresholds are hitting affordability ceilings. “You want to push rents to offset costs, but you can only push so far before you lose tenants,” Finney explains. “We’re walking a tightrope.”

 

Fiscal Instability and its Spillover Effect

With the national debt surpassing $36 trillion and projected to hit $46 trillion by 2035, all three major credit rating agencies have downgraded the U.S. government. This has raised borrowing costs and injected further uncertainty into long-term capital markets.

The debt-to-GDP ratio:

• FY 2024: 123%

 

• 2025: 100%

 

• 2035*: 118%

*projected to surpass historical peaks

 

“What the bond market needs is a signal that we’re even trying to fix this,” Finney says. “But instead, we’re cutting taxes and increasing spending. You can’t run a country like that and expect confidence to hold.”

 

As sovereign risk premiums rise, multifamily borrowers are directly impacted. Higher Treasury yields mean more expensive debt, which in turn depresses property values and complicates refinancing for assets already struggling with high leverage.

 

New trade policies have added another layer of complexity.

Tariffs introduced in early 2025 are expected to reduce long-run U.S. GDP by nearly 1%, while increasing consumer prices. “We’re basically taxing ourselves for no gain,” Finney says. “And it’s creating stagflation risk–lower growth and higher prices. That’s the worst combo for real estate.”

 

Recent economic forecasts are reflecting that concern. The Congressional Budget Office (CBO) projects real GDP growth to slow from 2.3% in 2024 to 1.9% in 2025. The Survey of Professional Forecasters goes further, lowering its 2025 GDP forecast to just 1.4%.

 

“It’s like we’re on the edge of a soft landing,” Finney notes, “but one gust of bad data could turn it into a crash.”

 

Household Stress

Beyond the headlines, Finney is keeping a close eye on consumers. Auto loan delinquencies have risen sharply, and Buy Now, Pay Later (BNPL) defaults are creeping up. “People are still spending, but a lot of it is on credit or deferred payments.”

 

“It tells me middle-class America is stretched thin. That’s the renter base for most of these Class B and C properties,” Finney warns. “If they start pulling back, demand softens, and that hits landlords hard.”

 

Despite financial strain, U.S. retail sales rose 5.2% year-over-year in April 2025, and international travel volumes exceeded pre-pandemic levels. “It’s the paradox of this market,” Finney reflects.

 

New and used vehicle sales also continue to recover, and restaurant spending remains strong. While encouraging, Finney urges caution: “The consumer is propping up this recovery, but it’s built on a fragile foundation. If job numbers slip or credit tightens further, it could turn quickly.”

 

Equity Market Optimism vs. Real Economy Conflict

Meanwhile, equity markets have surged to record highs, with the S&P 500 breaking 6,100 in early 2025. But Finney remains wary of drawing parallels to the real estate market. “The stock market is not the economy. Just because Apple’s up 12% doesn’t mean your cap rate is dropping.”

 

He points to concentrated gains in tech, the anticipation of future Fed cuts, and excess liquidity as drivers of market euphoria. “We need to be careful not to let Wall Street’s optimism distort Main Street’s reality.”

 

Soft vs. Hard Landing: Preparing for Both

 

The road ahead is uncertain, and Finney believes multifamily investors need to prepare for both upside and downside scenarios. If inflation moderates and the Fed cuts rates gradually, there’s potential for a late-2025 recovery. But if consumer stress deepens or trade-related inflation spikes, recession risks mount.

 

If inflation moderates and the Fed cuts rates gradually, there’s potential for a late-2025 recovery. But if consumer stress deepens or trade-related inflation spikes, recession risks mount. “If earnings fall and layoffs rise, that’s when the equity drawdown happens,” Finney warns. “And that’s when a lot of real estate valuations get re-tested.”

 

“Scrappy operators are still getting deals done,” Finney says. “But you have to be disciplined. The winners in this market are going to be the ones who underwrite conservatively, structure.”

 

As for what will mark the real turning point? “When expectations are managed, bond markets calm down, and equity comes off the sidelines—that’s when the engine restarts,” Finney says. “Until then, it’s about survival and positioning.”

 

Multifamily Market Performance: Stability Emerging From the Storm

The multifamily sector in 2025 is working through a turbulent yet transitional period. While macro-level uncertainty continues to weigh heavily on capital markets, property-level fundamentals are showing signs of stabilization.

 

“Deals are getting done… just not home runs,” Finney says. “If the rate holds steady, people can underwrite again. It’s not pretty, but it’s stable.”

 

Supply and Demand: A Narrowing Gap: 

• Following the pandemic-era construction surge, new supply is finally cooling. Multifamily starts are down 74% from 2021 peaks, and permit activity dropped 24% in 2024. Deliveries remain elevated, but the pipeline is shrinking.

 

• Absorption rates have recovered from 2022 lows

 

• 2024: +550K Units Absorbed

 

• 2025: 370K*

*projected

 

Vacancy rates peaked at 6.0% earlier this year but are now tracking toward 4.9% by year-end as demand steadies and completions slow.

 

Rent Growth and Tenant Sensitivity

After explosive growth in 2021–2022, rent increases flattened out in 2023 and early 2024. Fannie Mae projects a 2–2.6% growth for 2025, with a potential rebound in 2026. Still, affordability ceilings are real. “You’ve got tenants walking away over $25,” Finney notes. “It’s not just about comps anymore—it’s about real-life budgets.”

 

The percentage of units offering concessions remains high, especially in oversupplied metros. But Finney emphasizes that this is cyclical: “A lot of these markets are just digesting supply. If they can get through this year without bleeding rent rolls, they’ll be in better shape next year.”

 

Investment Activity is Thawing

Property values are still down more than 20% from their 2022 highs, but recent cap rate compression hints at a turning point. Investors are beginning to step in, drawn by lower basis deals and improving yield profiles. “You’re not going to get rich overnight,” Finney says. “But if you can buy at or below replacement cost, solve the debt side creatively, and wait out the volatility—there’s money to be made.”

 

Transaction volumes remain well below pre-2022 levels, but momentum is building. Q4 2024 saw a 33% quarter-over-quarter increase in volume, and major investors like Blackstone and KKR have re-entered the market with multi-billion-dollar multifamily acquisitions. Finney sees this as a pivotal moment: “Smart capital is sniffing around. Everyone’s hunting for value-add. Turnkey deals are a harder sell right now unless they’re deeply discounted.”

 

Regional Dynamics: No More National Plays

The days of nationwide one-size-fits-all strategies are over. Some Sunbelt markets, flush with pandemic-era development, are facing weak absorption and rising distress—Houston, for instance, has a criticized loan share of 38%.

 

“If you’re not underwriting block-by-block, you’re missing the mark,” Finney says. “The spread between top and bottom quartile markets has never been wider. This is where local knowledge is a must.”

 

Meanwhile, legacy markets like New York and Los Angeles are showing quiet resilience, with vacancy tightening and rent growth returning.

 

Loan Maturities: The Quiet Reckoning

A wave of multifamily loan maturities is underway, and many borrowers are running out of options. “They’ve extended two, three times. Now lenders are saying, ‘we’re done,’” Finney adds. With nearly $1 trillion in commercial mortgages maturing in 2025 alone, borrowers who financed under ultra-low-rate conditions in 2021 are facing refinancing hurdles in a much tighter credit environment.

 

Many are pursuing creative capital stacks involving structured notes, mezzanine debt, and preferred equity. But for some, Finney is blunt, “there’s no product that can save them. They’re handing back the keys.”

 

The rise in “performing matured” loans—those technically past due but kept alive through short-term extensions—indicates mounting pressure beneath the surface. “These aren’t going to hit the open market,” Finney notes. “The lender doesn’t want their dirty laundry out there either.” Instead, expect many troubled assets to quietly change hands through off-market placements with well-capitalized buyers.

 

Despite the looming maturity wall, capital is beginning to flow again.

 

Total commercial and multifamily mortgage borrowing and lending is projected to increase by 16% to $583 billion in 2025, up from $503 billion in 2024. Multifamily lending alone is expected to reach $361 billion, also a 16% increase. The Mortgage Bankers Association (MBA) anticipates further growth in 2026, with total CRE lending reaching $709 billion and multifamily accounting for $419 billion.

 

“People finally stopped holding their breath,” he said. “Once sellers, buyers, and lenders aligned on what ‘normal’ looks like, even if it’s not ideal, deals started to move again.”

 

Finney attributes this rebound to improved pricing transparency and more widespread acceptance of current market conditions.

 

Multifamily loan spreads narrowed 149 bps, reaching their lowest point since Q1 2022. This tightening of spreads is a positive development for borrowers, indicating increased competition among lenders. Banks led with a 34% share, up from 22% in Q4 2024, reflecting strengthened balance sheets and a favorable regulatory environment. CMBS conduits emerged as the second most active group with a 26% share, a substantial increase from 9% a year prior. Life companies maintained a steady 21% share. In contrast, alternative lenders, including debt funds and mortgage REITs, saw their share decline sharply to 19% from 48% a year earlier. Government agency lending for multifamily assets also saw a 15% year-over-year increase, reaching $22 billion in Q1 2025.

 

Conclusion: Stability Through Selectivity

The U.S. multifamily market enters the second half of 2025 at a pivotal juncture, pressured by economic headwinds, yet buoyed by solid fundamentals and improving capital flows. While global dry powder remains plentiful, investor sentiment is cautious, shaped by stagflation fears, rising delinquency signals in consumer credit, and policy volatility. In this environment, capital is becoming more selective—flowing into resilient sectors like multifamily, but only where risk is matched by compelling upside.

 

Finney offered a grounded perspective:

“The next three months are going to be extremely telling.” With inflation, trade dynamics, and consumer behavior all in flux, market direction could swing sharply. Still, Finney is guardedly hopeful. “We survived 2024,” he said. “And if I’m being honest, I feel more confident about America today than I did a year ago.”

 

Ultimately, multifamily investing in 2025 is less about timing the bottom and more about navigating volatility with discipline and vision. “Real estate’s not rocket science,” Finney added. “It’s who’s willing to work the hardest, the longest, to find the deal that pencils.”In a market defined by complexity, that scrappy persistence—and a clear-eyed view of risk— may be the greatest competitive advantage of all.