Is the U.S. residential market quietly setting up for the next rental surge?

If you look closely at the latest data, the signs are starting to stack up.

Mortgage rates remain stubbornly high, sitting around 6.7% as of this month (source: Freddie Mac). Inflation is cooling compared to last year, but it’s not falling fast enough to prompt the Fed to cut rates yet. That means housing affordability remains stretched for buyers—and demand for rentals stays strong.

But the bigger story is what’s happening on the supply side.

According to the U.S. Census Bureau, multifamily housing starts fell 32% year-over-year in March, pushing new construction to its lowest point since 2012. Builders have pulled back sharply due to high financing costs, tighter bank lending standards, and overall market uncertainty.

At the same time, rental occupancy remains solid.

RealPage reports national Class B and C occupancy rates are holding firm above 94%, as renters continue to seek more affordable options amid economic pressures. In many secondary markets—think places like Columbus, Indianapolis, and Tampa—these mid-tier properties are outperforming luxury Class A developments both in rent collections and demand stability.

What does this mean for investors?

It sets up a classic supply-demand imbalance. With construction slowing and demand holding steady (or even rising slightly as new households form), we’re likely to see rental rates stabilize in 2025, and potentially accelerate again by late 2026 into 2027.

Importantly, any new construction started today wouldn’t realistically deliver until 2027 or beyond. Projects require land acquisition, entitlement, financing, and build-out—none of which happen quickly, especially in a high-cost environment.

That gives current investors a window.

Class B and C assets, particularly in growth markets with strong job creation and limited new competition, are positioned to see the biggest upside. Not only are these properties cash-flow resilient today, but they may also benefit from strengthening rental pricing power as supply constraints bite deeper over the next two to three years.

Waiting for rates to drop before acting might sound logical, but the market often moves ahead of those headline moments. Investors positioning now, while sentiment remains cautious, are setting themselves up for the next expansionary phase.

A few key takeaways for investors right now:

Focus on supply-constrained markets: Secondary cities with positive net migration and healthy job growth offer the best setup.

Prioritize affordability: Class B and C properties remain where the broadest, most resilient tenant base sits.

Plan for longer holding periods: Given the construction slowdown, cash-flow stability will matter even more before appreciation kicks in later.

Stay close to the data: Tracking starts, occupancy, and rent growth rates will be critical over the next 18 months.

Want to hear more about the markets and opportunities we’re focused on right now? Shoot me a message , always happy to connect, exchange notes, and brainstorm the opportunities this market is quietly serving up.

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