EP#105 Grant Montgomery | Q4'26 Multifamily Update: Improving Fundamentals, Cooling Capital

Episode 105 of The Rent Roll features host Jay Parsons analyzing Q3 2026 multifamily market data alongside guest Grant Montgomery from CoStar. The episode identifies a paradoxical market condition: fundamental performance is improving substantially while capital markets are cooling, a phenomenon Parsons suggests hasn't been seen in at least 25 years of recorded data.

On the supply side, 2026 year-to-date completions total 231,000 units—the lowest in seven years and roughly half the 450,000 units delivered in the first nine months of 2024. This represents a dramatic slowdown from peak supply periods. Concurrently, apartment absorption has exceeded forecaster expectations, with RealPage reporting 345,000 units absorbed through the first nine months, while CoStar's figures are even higher. This marks the first time in six years that absorption has meaningfully outpaced supply completion.

Vacancy rates have reversed their upward trend for the first time since November 2021, declining steadily every month since March 2026. CoStar reports vacancy down to approximately 7.8%, representing a 70 basis point improvement from Q4 2025 peaks. Importantly, this improvement is occurring not just in lease-ups of new properties but also in stabilized existing inventory, indicating broad-based market improvement rather than just new construction absorption.

Rent growth has shifted dramatically. Year-to-date effective rent growth stands at 2.8% according to RealPage (slightly lower per CoStar), positioning 2026 as the best year for rent growth in four years, though still well below pre-COVID trend lines. Year-over-year rent growth reached 1.5%, the first time rents have grown above 1% since June 2023—over three years prior. Parsons forecasts year-end rent growth will round to approximately 2%. Month-over-month rent changes show seasonal cooling (flat to slightly negative in September), but year-over-year improvements continue due to base effects—comparing against weak performance from a year prior.

Geographic variation is pronounced. San Francisco leads dramatically with 14.5% year-over-year rent growth, forcing Parsons to remove it from charts to maintain readability of other markets. Virginia Beach shows 7% growth. However, the story centers on shifting momentum in high-supply Sunbelt markets. Austin, the supply boom's epicenter with 100,000 new units in six years (30% of total inventory), has returned to slightly positive year-over-year rent growth at 0.11% after three years of double-digit declines. Multiple markets including Jacksonville, Raleigh, Atlanta, Las Vegas, Orlando, and Salt Lake have tripped into positive territory for the first time in years, albeit with small positive figures (0.2-0.5%).

Montgomery notes CoStar upgraded its 2026 rent forecast from 0.5% to 1.9% based on absorption strength exceeding expectations. He attributes this to multiple layered factors rather than single causes: peak Gen Z entering core renting years, millennials renting longer, and pricing returning to 2021 levels in some markets, pulling marginal renters from living with family or roommates. Fourteen of the top 50 markets are tracking for either their number one or number two absorption year on record.

On future rent growth trajectory, Montgomery suggests that while momentum is clear, markets need another solid spring/summer leasing season and continued pipeline reduction before reaching true pricing power. Lower-supplied coastal and Midwest markets will continue leading, but Sunbelt markets like Norfolk/Virginia Beach, Charleston, and Palm Beach should remain strong. Washington D.C. and Boston should improve in 2027 from current weakness. He predicts more compression of rent growth nationally—top performers stepping down from unsustainable highs while laggards catch up.

Supply fundamentals remain constrained going forward. Starts are down 70% from peaks and broadly weak across 50 major markets, with only 12 showing higher 12-month trailing starts in Q3 versus Q1. Only Washington D.C. and Charlotte show meaningfully higher starts, with Charlotte particularly notable given it will complete 13,000 units in the next 12 months versus 9,300 in the past 12 months—a 40% jump but still below pre-COVID peaks. Montgomery indicates developers remain creative with capital structures but face a narrow aperture where economics work, requiring optimal combinations of location, sponsor, and financing. He sees no meaningful start recovery in the foreseeable future, predicting a U-shaped rather than V-shaped recovery cycle.

Parsons adds context on concessions: while concession values will eventually decline as occupancy improves, they may persist longer than asset managers expect due to industry conditioning, with asking rents potentially rising while concessions remain as marketing tools. A Financial Times meta-analysis of 112 rent control studies is referenced, showing rent control leads to reduced supply and construction, higher rents in non-controlled units, reduced housing quality, and benefits only existing renters at future renters' expense, providing context for Spain's recent policy decisions.

Demand headwinds identified by Montgomery include labor market weakness—recent jobs data came lighter than expected, with 2025 revised figures showing only 10,000 monthly job additions, extremely low and insufficient for normal labor force growth. The no-hire environment appears to hold but remains fragile. Additionally, wage growth has begun lagging inflation again as of April 2026 after outpacing it from early 2023 through early 2026, reducing real spending power particularly for lower-income renters. Montgomery highlights sensitivity risks in C-class and B-minus properties where renters already spend disproportionately high percentages of income on rent.