Multifamily mortgage originations are expected to rise this year, while rents will rise modestly and vacancy rates will increase slightly, according to a new forecast by Freddie Mac.

The national leading multifamily housing financier expects rents to rise by 2.2% in 2025. Demand for rental units is expected to remain above average, but vacancy rates will increase to 6.2%. The combination of below-average rent growth and rising vacancy rates is expected to result in gross rental income growth of 2% for the year.

Despite the higher interest rates, multifamily origination volume is expected to finish 2024 at $320 billion and rise to between $370 billion and $380 billion this year.

Freddie Mac’s Outlook report explains that while there was strong demand for rental units in 2024, record-high supplies kept rents and other multifamily fundamentals muted. At the same time, volatile interest rates put pressure on property values.

As we enter 2025, the multifamily sector is expected to remain a favored asset class over the long term because of continuing economic strength, demographic tailwinds and the lack of alternative housing options. The Outlook report forecasts a varied performance across the nation for multifamily properties, with many Sun Belt and Mountain West markets experiencing high levels of supply causing performance to lag.

However, markets with lower supply levels, including smaller markets in the Sun Belt and some large coastal markets, are expected to achieve stronger performance this year.

“Overall multifamily demand has been outstanding, but some areas are feeling the impact of the highest level of new supply since the 1980s,” said Sara Hoffmann, senior director of multifamily research at Freddie Mac. “We expect the multifamily market to continue to see subdued but positive growth in 2025, and for origination volume to increase as interest rates continue to stabilize — albeit at a higher level.”