[User] Apartment Vacancy Rate/ Average Monthly Rent Data are for market-rate and mixed market-rate and affordable general occupancy apartment properties with five or more units, including those that are stabilized and in lease up. Cost Burdened Spending more than 30 percent of household income on housing costs. Moderate to high-cost burden refers to households spending 31 to 50 percent of income on housing costs. Severe cost burden refers to households spending 51 percent or more of income on housing costs.

[Assistant] Demand The demand estimates in the analysis are not a forecast of building activity. They are the estimates of the total housing production needed to achieve a balanced market at the end of the 3-year forecast period given conditions on the as-of date of the analysis, growth, losses, and excess vacancies. The estimates do not account for units currently under construction or units in the development pipeline.


[User] The HMA is at the intersection of Interstates 90 and 94, approximately 80 miles west of Milwaukee, 140 miles southwest of Green Bay, and 150 miles northwest of Chicago. The central city of Madison, in Dane County, is the Wisconsin state capital and one of two cities in the United States to contain an isthmus. Known as the “City of Four Lakes,” downtown Madison is between Lakes Mendota and Monona, with Lakes Waubesa and Kegonsa nearby to the southeast. The HMA is the second most populous metropolitan area in Wisconsin and accounted for 37 percent of the population growth in the state from 2010 to 2024.

[Assistant] During the 12 months ending April 2025, nonfarm payrolls averaged reflecting an increase of 2,600 jobs, or 0.6 percent, from a year earlier, with growth in the service-providing sectors offsetting losses in the goods-producing sectors. By comparison, during the 12 months ending April 2024, nonfarm payrolls increased by 9,000, or 2.2 percent, from the previous year. During the 12 months ending April 2025, the unemployment rate averaged 2.5 percent, up slightly from 2.3 percent a year earlier because the labor force grew faster than employment. Nonfarm payroll growth is expected to average 0.8 percent annually during the 3-year forecast period.


[User] During the 12 months ending April 2025, home sales decreased by 210, or 2 percent, from a year earlier to 9,550 sales following a decline of 8 percent, or 860 sales, during the previous 12 months (Cotality). Elevated mortgage interest rates and rising home sales prices have reduced affordability for buyers since 2020. The for-sale inventory has increased slightly from the low levels during the previous 3 years but is still relatively low. During the 12 months ending April 2025, the average home sales price increased by $35,450, or 9 percent, from a year earlier to accelerating from the increase of 7 percent, or $24,150, during the 12 months ending April 2024. During the next 3 years, demand is estimated for 5,450 new homes. The 720 homes under construction are expected to meet a portion of the demand during the first year. The apartment market is also balanced; as of the first quarter of 2025, the apartment vacancy rate was 5.3 percent, up from 4.3 percent a year earlier and a recent low of 3.3 percent during the first quarter of 2022, when conditions were very tight ( Group). The average monthly apartment rent was $1,612 as of the first quarter of 2025, reflecting an increase of $40, or 3 percent, from a year earlier, after an increase of $53, or 3 percent, as of the first quarter of 2024. Rent growth slowed and vacancy rates increased compared with the period from 2020 to 2023 due to a relatively high volume of apartment units entering the market. During the next 3 years, demand is expected for 9,675 new rental units. The 7,250 units under construction will meet most of the demand during the first 2 years of the forecast period. Economy Stable: During the 12 months ending April 2025, nonfarm payroll growth in the Madison HMA slowed from the previous 12 months. Rental Market Balanced: The rental vacancy rate rose from 4.1 percent during 2020, when conditions were tight, to a current estimated vacancy rate of 6.0 percent due to increased rental unit construction since 2020. Sales Market Tight: The home sales market in the HMA has a current estimated vacancy rate of 0.6 percent, down from 0.8 percent as of April 2020, when market conditions were slightly tight.

[Assistant] Units under construction as of May 1, 2025. The forecast period is May 1, 2025, to May 1, 2028. Source: Estimates by the analyst


[User] Job growth in the HMA moderated from the year-over-year growth of 9,000 jobs, or 2.2 percent, during the 12 months ending April 2024, which was approximately double the rate for the state and higher than the increase of 1.8 percent for the nation. Note: Payrolls are based on 12-month moving averages, in thousands. Sources: U.S. 12-Month Average Nonfarm Payrolls in the Madison HMA During the 12 months ending April 2025, the government sector added 2,000 jobs, reflecting a 2.1-percent increase from a year earlier. That gain was down from the year-over-year increase of 3,700 jobs, or 4.0 percent, during the 12 months ending April 2024. The recent growth was primarily in the state government subsector, which added 1,800 jobs from a year earlier and included increased employment at UW–Madison, due partially to growing enrollment. A portion of the jobs added were for students employed in work-study programs. Employment growth in the local government subsector was partially due to the city of Madison opening a new bus rapid transit (BRT) line in September 2024 to become the second city in Wisconsin with a BRT line. Five nonfarm payroll sectors in the HMA lost jobs during the 12 months ending April 2025, led by the manufacturing sector, which declined by 1,000 jobs, or 4.0 percent, with losses accelerating from a year earlier when the sector fell by 100 jobs, or 0.2 percent. Recent manufacturing job losses included layoffs by book printer Sheridan and food producer Midwest Perishables Inc. Payroll losses also occurred in the financial activities sector, which dropped by 600 jobs, or 2.5 percent, faster than the 0.9-percent decline of 200 jobs a year earlier. The recent decline was partly due to the layoffs of 310 employees by the Wisconsin Physicians Service Insurance Corporation. The unemployment rate increased slightly during the past 2 years because increased net in-migration contributed to growth in the labor force, which outpaced resident employment growth. The unemployment rate in the Madison HMA has been consistently lower than the rate for Wisconsin and the nation since at least 2010, including during 2020, when all three rates briefly spiked due to the impacts of the COVID-19 pandemic. Economic Periods of Significance 2011 Through 2012 Nonfarm payroll growth averaged 3,600 jobs, or 4.0 percent, annually during the period from 2011 through 2012, when the economy of the HMA recovered from job losses during the Great Recession and nonfarm payrolls exceeded the 2007 average by 0.9 percent. However, only 6 of the 11 payroll sectors reached their respective 2007 average by 2012, with the goods-producing and the wholesale and retail trade sectors in particular lagging behind the growth of the other sectors. The professional and business services sector recovered relatively rapidly during the period, increasing by an average of 2,000 jobs, or 4.8 percent, annually. The information sector in the HMA was relatively unaffected by the Great Recession and continued to expand in 2011 and 2012, with growth averaging 900 jobs, or 7.3 percent, annually. Growth in the sector was partially due to continual expansion at Epic Systems Corporation after the company moved its headquarters from the city of Madison to the city of Verona in 2007. Job gains, however, were partly offset by average declines of 900 jobs, or 1.8 percent, annually in the state government subsector, partially due to layoffs at the State of Wisconsin and UW–Madison because of declining enrollment in 2011. 12-Month Average Unemployment Rate in the Madison HMA, Wisconsin, and the Nation Note: Based on the 12-month moving average. All payroll sectors expanded, and the unemployment rate fell from 4.9 percent during 2013 to 2.9 percent during 2016. The fastest growing payroll sectors during the period were the information, the professional and business services, the education and health services, and the leisure and hospitality sectors, each adding an average of more than 1,000 jobs annually. Contributing to the growth in the information sector, employment by software publishers continued to grow, and industry payrolls quadrupled from 2005 to 2015 in the HMA compared with a 38-percent increase nationally, partially due to expansion by Epic Systems Corporation; Zendesk, Inc.; and several video game development studios (Madison Region Economic Partnership). Exact Sciences Corporation and Promega Corporation also expanded their research and production facilities in the HMA, adding an estimated 500 employees. Expansions in the education and health services sector were partially due to UW Health completing construction of East Madison Hospital in late 2015, and the opening of four hotels contributed to expansion in the leisure and hospitality sector. The mining, logging, and construction sector increased by an average of 900 jobs, or 6.1 percent, annually due to commercial construction projects during the period and a surge in residential building activity beginning in 2015. 2017 Through 2019 Nonfarm payroll growth in the Madison HMA slowed to an average of 1.1 percent, or 4,400 jobs, annually, which outpaced the rate of growth for the state but lagged that of the nation. The unemployment rate averaged 2.4 percent annually from 2017 through 2019, below the rate for the state and the nation. Nonfarm payroll growth in the service-providing sectors slowed except in the education and health services sector, which accelerated to an average increase of 3.0 percent, or 1,400 jobs, annually. Growth in the professional and business services sector continued, partially due to expansions at University Research Park–UW Madison, with companies, including Exact Sciences Corporation, Ultratec, Inc. and FUJIFILM Cellular Dynamics, Inc., opening new headquarters buildings at the site in 2017 and 2018. Google LLC (Alphabet Inc.) also opened a regional office in downtown Madison in 2019. Job growth in the manufacturing sector averaged 800 jobs, or 2.2 percent, annually because of new manufacturing facilities for biomedical technologies and pharmaceuticals. Partly offsetting the growth, the wholesale and retail trade sector fell an average of 0.6 percent, or by 300 jobs, annually, partially due to expansions in online retail, leading to less employment in stores. 2020 Through 2023 In 2020, the COVID-19 pandemic-related economic downturn led to a loss of 21,700 jobs, or 5.3 percent, in the HMA compared with 2019. The rate of job loss was less severe than the rate for the nation, which declined 5.8 percent. Similar to the nation, the leisure and hospitality sector had the most job losses in the HMA, declining by 10,300 jobs, or 26.8 percent. The government sector declined by 4,300 jobs, or 4.8 percent, with losses in both the state and local government subsectors, partially due to both local public school districts and UW–Madison suspending in-person operations. During the following 2 years, the economy of the HMA recovered, with payrolls increasing by an average of 11,500 jobs, or 2.9 percent, annually, reaching the 2019 prepandemic nonfarm payroll average during 2022, roughly equivalent to the timing of the recovery for the nation but sooner than the state, which did not recover until 2023. The unemployment rate in the HMA fell to an annual average of 2.2 percent during 2022 and 2023. Job recovery was uneven across sectors, however, because the government, the leisure and hospitality, and the other services sectors did not fully recover the number of jobs lost until 2023 or 2024. The professional and business services sector and the retail trade subsector are still below the 2019 average. Although the professional and business services sector was less affected by job losses than other sectors during 2020, only declining 2.3 percent, the sector was affected more than other payroll sectors Increases in the availability of remote work allowed employees to relocate out of the HMA. In addition, companies vacated unused office space, reducing office support service jobs and limiting job recovery in the sector. During the first quarter of 2019, the office vacancy rate in the HMA was 4.0 percent; it rose to 5.4 percent as of the first quarter of 2023 ( Group).

[Assistant] Forecast During the 3-year forecast period, nonfarm payrolls in the HMA are expected to increase at an average annual rate of 0.8 percent, accelerating slightly from the most recent 12 months but relatively slow compared with previous periods. Projects underway or expected to begin soon will support jobs in industries such as construction, health care, information, research, and warehousing and transportation. UW Health has $900 million in construction underway across five facilities in the HMA, which will total approximately 1 million square feet once complete. Two facilities are underway, including an expansion at UW Health University Hospital and a new inpatient physical rehabilitation center in the city of Fitchburg in collaboration with Lifepoint Health, Inc. In late 2025, SSM Health will begin construction of healthcare facilities in the cities of Sun Prairie and Verona. In the information sector, Epic Systems Corporation is expanding its headquarters, with four buildings under construction, and is planning to hire 2,500 employees in the next 2 years. Thermo Fisher Scientific Inc. completed the construction of a 72,500-square-foot research and testing lab in 2024 and is expected to fully staff the facility with 350 employees by 2026. During 2024, Stoughton Trailers, LLC began constructing a national headquarters facility, expected to employ 250 people. Amazon.com, Inc. is building a 3.2 million-square-foot distribution center and warehouse. With a 2026 planned completion, the facility is expected to employ 1,500 people. Kwik Trip, Inc. also began constructing a distribution center, which is expected to add 400 jobs when complete in 2026.


[User] The economy in the HMA was relatively strong compared with the economy of the nation and the rest of the Great Lakes region, which included many economically distressed areas during the period following Population and Households Current Population: Population growth in the HMA has been strong since 2021 due to significant net in-migration.

[Assistant] Population Trends The Madison HMA has an estimated population of as of May 1, 2025, reflecting an average increase of 1.3 percent, or 9,025, annually since 2021 (U.S. Census Bureau population estimates as of July 1; current estimate by the analyst; Table 3). Whereas total population growth has rebounded since 2021, net natural increase since 2021 was nearly unchanged from the previous period, averaging 1,650 people annually but down from the 2010-to-2020 decade because of the long-term trend of declining birth rates and rising death rates due to an aging population (U.S. Census Bureau decennial census). Components of Population Change in the Madison HMA, 2010 Through the Forecast Notes: Data displayed are average annual totals. The forecast period is the current date (May 1, 2025) to May 1, 2028. Sources: U.S. Census Bureau; current to forecast—estimates by the analyst Population Quick Facts 2020 Current Forecast Population Average Annual Change Percentage Change 1.2 1.0 1.0 Household Quick Facts 2020 Current Forecast Households Average Annual Change Percentage Change 1.4 1.6 1.3 Notes: Average annual changes and percentage changes are based on averages from 2010 to to current, and current to forecast. The forecast period is the current date (May 1, 2025) to May 1, 2028. Sources: 2010 and 2020—2010 Census and 2020 Census; current and forecast—estimates by the analyst Table 3. Madison HMA Population and Household Quick Facts


[User] As of 2012, the Madison HMA exceeded its 2007 nonfarm payroll average by 0.9 percent, whereas the nation and the region were still recovering. From 2012 to 2017, population growth accelerated, averaging 1.3 percent, or 8,275 people, annually. Net in-migration increased to an average of 5,175 people annually because economic growth accelerated significantly, with the HMA adding more than double the number of jobs added each year during 2011 and 2012. Net natural increase moderated slightly from the previous period to an average of 3,100 people annually. Population growth from 2017 to 2020 averaged 6,175, or 0.9 percent, annually, 25 percent lower than the annual average from 2012 to 2017, because of lower levels of net in-migration and net natural increase. Slower economic growth in the HMA helped reduce net in-migration to an annual average of 3,700 people. From April 2020 to July 2021, net natural increase fell to an average of 2,475 people annually. The COVID-19 pandemic contributed to net out-migration from April 2020 to July 2021, primarily due to the March 2020 suspension of in-person classes at UW–Madison, which led students from outside the HMA to return home to continue the Spring 2020 semester and a portion of the following academic year remotely. During the spring of 2021, about one-third of the 8,850 beds in dormitories at the university were occupied (UW–Madison). The net out-migration was offset by net natural increase of 1,675 people annually, which is relatively low compared with the previous decade, partially because of an increase in deaths due to COVID-19 and lower birth rates. The population increased less than 0.1 percent, or by an annual average of 250, from 2020 to 2021. The largest population gain in the city has primarily occurred in the 53703 ZIP Code, which includes downtown Madison and the East Washington Avenue corridor northeast of downtown but excludes neighborhoods closest to UW–Madison southwest of downtown (Map 1). Comparing the 2023 ACS 5-year estimate with the 2018 estimate, the population in this ZIP Code increased by an average of 800, or 2.4 percent, annually (ACS 2014–2018 and 2019–2023 5-year data). The 53718 ZIP Code had the largest population gain in the city of Madison, growing by an average of 1,025, or 7.6 percent, annually, during the same period. Relatively rapid population growth in the 53718 ZIP Code was partially due to the East Madison Hospital and Eastpark Medical Center, which both opened within the past 10 years in the ZIP Code. Interstates 90 and 94, as well as several state highways, all intersect within the ZIP Code, allowing for ease of commuting. Household Trends and Composition As of May 1, 2025, an estimated households reside in the HMA, reflecting an average annual increase of 4,750, or 1.6 percent, since April 2020. By comparison, from 2010 to 2020, the HMA added an average of 3,675 households, or 1.4 percent, annually. Household growth has accelerated since 2020, partly due to increased household formation after the onset of the pandemic. In addition, the trend to smaller household sizes boosted household growth, which has contributed to the strong absorption of rental units and increased home sales activity since 2020. During percent of households, or approximately were single-person households, up 24 percent from 87,900 households, or 31.5 percent, during 2019 (ACS 1-year data). Moreover, approximately 56 percent of apartment units in the HMA were studio or one-bedroom units as of the first quarter of 2025, up from 51 percent as of the first quarter of 2020 ( Group). Growth in renter households has outpaced that of owner households since 2010. A contributing factor to the decreasing homeownership rate has been the expansion in student households, most of whom are renters, and the construction of apartments to accommodate increased enrollment; no new dormitories have been built in the HMA since 2012, despite an increase of approximately 9,275 students. The students who occupy the approximately 8,850 dormitory beds at UW–Madison are included in the group quarters population and are not counted in the household population.

[Assistant] Net in-migration in the HMA is expected to slow to a rate comparable to the period from 2017 to 2020 because moderate economic growth is expected to continue. Net natural increase is expected to rise moderately, partly due to the expanded population of the HMA, but the rate is not expected to reach the levels during the 2010-to-2020 decade because birth rates have declined. Households are expected to reach during the forecast period, reflecting an average annual increase of 4,225, or 1.3 percent, outpacing population growth, partly because of the continued trend toward smaller households.


[User] Current Conditions The home sales market in the Madison HMA— including single-family homes, condominiums, and mobile homes—is tight, with an estimated vacancy rate of 0.6 percent, down from 0.8 percent as of April 2020, when market conditions were slightly tight. The tightening of the market is partially due to a 36-percent decline in the for-sale inventory from April 2020 to April 2025, resulting in a 2.5-month supply of homes for sale, down from 3.0 months as of April 2020 and lower than the current supply nationally of 3.2 months (Redfin, a national real estate brokerage; Inventory of homes for sale data only available since October 2015. 12-Month Home Sales Totals by Type of Sale in the Madison HMA Sources: Cotality, with adjustments by the analyst; Freddie Mac Primary Mortgage Market Survey The faster price growth was partly due to higher demand because of slightly moderating interest rates and the relatively constrained inventory. By comparison, during the period from 2022 through 2023, the average price for an existing home increased by an average of $27,100, or 8 percent, annually, and from 2020 through 2021, the average sales price rose by an average of $23,650, or 8 percent, annually. Previously, from 2015 through 2019, when the for-sale inventory was declining but generally much higher, existing sales price growth averaged $12,550, or 5 percent, annually. The accelerated sales price growth has resulted in a cumulative 44-percent increase since 2020, outpacing the increase of 39 percent for the nation. New Home Sales and Prices New home sales in the Madison HMA are a significant portion of new home sales statewide and are a larger component of the sales market in the HMA compared with the state. Of all new homes sold in Wisconsin during the 12 months ending April 2025, approximately 28 percent were in the HMA; however, new home sales during the 12 months ending April 2025 declined by 180, or 22 percent, from a year earlier to reach 630 sales, the lowest total since 2011. The decline was similar to the year-over-year decline of 230 sales, or 22 percent, during the 12 months ending April 2024 and from 2021 through 2023, when interest rates increased and new home sales declined by an average of 270, or 22 percent, annually. During 2020 and 2021, new home sales peaked, averaging 1,350 sales annually following a year-over-year increase of 36 percent, or 360 sales, during 2020, partly due to low interest rates. New home sales from 2010 through 2019 generally trended upward due to job and population growth in the HMA, from an average of 725 annually from 2010 through 2014 to an average of 1,000 sales annually from 2015 through 2019. During the 12 months ending April 2025, the average price for a new home was reflecting an increase of $21,000, or 4 percent, from a year earlier, moderating from the increase of $28,950, or 6 percent, during the 12 months ending April 2024. Low new home sales activity and stabilization in the cost of residential construction have contributed to slowing price growth. Year-over-year price growth recently peaked during 2022, when the average price for a new home increased by $52,900, or 13 percent, outpacing the price growth for existing homes. An 11-percent increase of $41,350 in 2021 preceded that peak. A contributing factor to the high level of new home price growth was the rising cost of residential construction materials, which increased an average of 15 percent annually in the nation during 2021 and 2022 (National Association of Home Builders [NAHB]). During 2020, new home prices were relatively unaffected by the surge in new home sales, increasing just 2 percent, or $6,525, from a year earlier. By comparison, from 2015 through 2019, when sales were relatively steady, new home sales prices increased an average of $13,950, or 4 percent, annually. Housing Affordability: Sales The high home sales prices and mortgage interest rates have decreased affordability. The Madison HMA is ranked 111th in home affordability among 176 major metropolitan areas nationally as of the first quarter of 2025, down from 106th as of the first quarter of 2023 (NAHB/Wells Fargo). A family at the median income in the HMA would need to allocate 33 percent of their pre-tax income to cover the monthly payment for a median-priced home as of the first quarter of 2025, unchanged from the previous year but increasing from 30 percent as of the first quarter of 2023 because growth in sales prices outpaced income growth. Across the nation, by comparison, a family at the median income would need to allocate 36 percent of its income for a median-priced home, down from 40 percent as of the first quarter of 2023 because the growth in incomes outpaced price growth. Despite the HMA being generally more affordable than the nation as a whole, the cost burden for first-time homebuyers is higher in the HMA than the nation. Sales housing in the Great Lakes region is generally more affordable than that of the nation; however, the Madison HMA This is likely due to the large share of students among renter households. Sales permitting in the Madison HMA increased from the average of 1,625 units annually during 2022 and 2023 but is still below the most recent peak during 2020 and 2021, when new home sales were relatively high and sales permitting averaged 1,800 units annually. Sales permitting from 2015 through 2019 averaged 1,750 units annually and increased from an average of 1,050 units annually from 2010 through 2014, partially due to stronger net-in migration. Permitting of sales units is significantly higher than the number of new home sales recorded, partly because many custom-built homes, including those built on land already owned by a household contracting with a builder, require a building permit but may not be included in reported sales. Speculative construction by home builders—home construction without a confirmed buyer—is relatively uncommon in the HMA.

[Assistant] Forecast Demand for 5,450 new single-family homes, townhomes, or condominiums is expected during the next 3 years ( The forecast period is May 1, 2025, to May 1, 2028. Source: Estimates by the analyst


[User] Current Conditions and Recent Trends The overall rental market in the Madison HMA— including single-family homes, mobile homes, and apartments—is balanced, with an estimated vacancy rate of 6.0 percent, up from 4.1 percent as of April 2020, when conditions were tight ( Group Student Housing Market As of the fall of 2024, UW–Madison had an enrollment of 52,100. Students at the university make up a large portion of the renter households in the HMA, and with strong enrollment growth since 2020, students have become a more significant portion of the rental market. Primarily occupied by first- and second-year students, dormitory beds at UW–Madison currently number 8,850, down by about 100 beds since 2012 despite an increase of 2,700 first- and second-year students. This decrease in dorm capacity has led to more students entering the general apartment market since 2020. Although not restricted to students, a portion of the apartment inventory is primarily marketed to students; these properties may feature amenities such as individual room leases, fully furnished rooms, and proximity to campus or public transportation. As of the first quarter of 2025, the inventory included in the Group-defined student market totaled approximately 34,400 beds, up by 2,825, or 9 percent, from a year earlier. The vacancy rate at these properties as of the first quarter of 2025 was 4.2 percent, up from 2.8 percent a year earlier, During 2022 and 2023, when student apartment market conditions were very tight, the vacancy rate averaged 2.1 percent annually, and rents increased an average of $62, or 6 percent, annually. Rental permitting during the 12 months ending April 2025 increased by 310 units, or 7 percent, from the previous year to 4,700 units, slightly lower than the period of elevated construction activity from 2021 through 2023. Rental construction activity was very low following the Great Recession, averaging 540 units annually during 2010 and 2011, but increased to an average of 1,950 units annually from 2012 through 2013 as the economy of the HMA recovered. Net in-migration and apartment absorption led to a decline in vacancy rates from 2010 through 2013; as a result, developers increased building activity from 2014 through 2016 to an average of 3,700 units annually, keeping pace with the absorption of units. A slowing of net in-migration during the period from 2017 to 2020 contributed to lower demand for apartment units in the HMA, leading to relatively low rent growth; rental permitting declined to 2,900 units annually. Demand for apartment units has increased since 2020, partially due to a relatively high rate of population growth but also an increased rate of household formation and smaller households. Developers responded to the low vacancy rates and high rent growth by increasing construction significantly to an average of 5,100 units annually from 2021 through 2023. As those units entered the market, rent growth slowed and vacancy rates increased, causing the market to transition to balanced conditions. The net absorption of apartment units remained strong in the HMA, however, preventing the market from becoming soft despite increased supply. Building activity remains strong; approximately 7,250 units are under construction. Construction has remained high even in this mostly built-out area, partly because of changes in zoning and height restrictions in downtown Madison and along the East Washington corridor, where older housing was demolished. Suburbs where the portion of HMA rental construction has increased since 2020 include the villages of Cottage Grove and DeForest, which increased from less than 1 percent each from 2010 through 2019 to 3 percent and 4 percent, respectively, since 2020. From 2017 through percent of renter households faced a moderate to high cost burden, with 31 to 50 percent of their income going to housing costs, significantly higher than 6.9 percent nationally ( American Community Survey 1-year data Line Item Moderate to High Cost Burden: 31–50 Percent of Income Toward Housing Costs Severe Cost Burden: 51 Percent or More of Income Toward Housing Costs Madison HMA Nation Madison HMA Nation Renter Households with Income <50% HAMFI Total Renter Households HAMFI = HUD Area Median Family Income. Sources: Consolidated Planning/Comprehensive Housing Affordability Strategy Data; American Community Survey 2017–21 5-year estimates Table 8. Percentage of Cost-Burdened Renter Households by Income in the Madison HMA and the Nation, 2017–21

[Assistant] The 7,250 units under construction are expected to meet the demand during the first 2 years of the forecast period. In addition, approximately 590 units in final planning are expected to begin construction within the next 6 months and will meet some of the demand in the third year. Moderate population growth and increasing student enrollment at universities in the HMA will support demand for rental units. Rental Units Demand 9,675 Units Under Construction 7,250 Units Note: The forecast period is May 1, 2025, to May 1, 2028. Source: Estimates by the analyst Table 9. Demand for New Rental Units in the Madison HMA During the Forecast Period


[User] Executive Summary 1 Housing markets began the twenty- first century on a high note. Buoyed by the longest economic expansion in history, home sales, homeowner- ship rates, and the value of residen- tial construction all set new records in 1999. And thanks to strong income growth, housing affordabili- ty remained in check for most Americans despite rising interest rates, home prices, and rents. Widespread home price inflation continues to lift household net worth. The stock market boom notwithstanding, home equity remains the cornerstone of house- hold wealth—even among most American homeowners who also have stock holdings. Home Building’s Resilience Housing markets shrugged off a full percentage-point increase in interest rates in 1999, with no year- over-year decline posted in aggre- gate production or home sales. Concerns over Sprawl The fast pace of residential con- struction has fueled concerns about sprawl. As employment continues to decentralize, households are able to live and work at greater and greater distances from the urban core. As a Housing Starts GDP Change 1 The Current Housing Expansion Is the Longest on Record Sources: Census Bureau, Series C-25 and Bureau of Economic Analysis, Survey of Current Business. Homeownership on the rise Powered by strong income and employment growth, the national homeownership rate reached a new annual high of 66.8 percent in 1999 and continues to climb across all geographic regions, age groups, and racial/ethnic groups. Although per- sistent disparities between whites and minorities narrowed only slight- ly, minorities still accounted for near- ly 40 percent of the net growth in owners in the final half of the 1990s. While reaching traditionally under- served markets, the subprime lend- ing boom in low-income minority areas is noteworthy because of the higher rates and fees these lenders charge. According to a 1996 Freddie Mac study, between 10 percent and 35 percent of subprime borrowers could have qualified for lower-cost prime loans. The lack of access to prime lenders for such borrowers is thus a source of growing concern. Losses of Affordable Housing Despite the strong economy, record numbers of very low-income house- holds are devoting more than half their incomes for housing—and working is no panacea for these high housing cost burdens. About half a million very low-income renters and nearly as many very low-income owners earning at least the equiva- lent of the full-time minimum wage spend this much for housing. 4 financed through tax credits has slowed steadily, primarily because funding is not adjusted for inflation.

[Assistant] Demand in the next decade Although household growth may slow slightly over the coming decade, home building will likely rival the 1990s in terms of number of units built and value of construc- tion. As the aging baby boomers boost the number of 45-54 and especially 55-64 year-olds, the demand for amenity-rich homes and second homes will continue to rise. At the same time, the echo boomers—the children of the baby boomers—will start to replace the smaller baby-bust generation in the young adult age groups, giving the markets for manufactured housing, starter homes, and rental apart- ments a modest lift.


[User] Efforts to combat sprawl by passing no- and slow-growth initiatives in outlying areas could actually make matters worse. By taking land out of the path of development, these ini- tiatives run the risk of pushing development even further out. Among large Northeastern and Midwestern cities, only New York, Columbus, and Kansas City experienced steady population growth through 1998. While large cities in the South and West are still attracting new resi- dents, Charlotte is the only location where population growth in the city has outpaced that in the suburbs. Homeowners have capitalized on soaring prices when they sell. The Federal Reserve Board has estimat- ed that the average capital gain on a home sale, net of transaction costs, has exceeded $25,000 for the past five years. With existing home sales running at roughly 4.5 million annually, realized capital gains amounted to as much as $560 bil- lion in the second half of the 1990s. For half of black homeowners, home equity accounted for 57 per- cent or more of their net wealth. For half of Hispanic homeowners, the share was even higher at 71 percent or more. Among half of white home- owners, though, the contribution of home equity to wealth was 40 per- cent or less.

[Assistant] Demographic Drivers 10 Although household growth is expected to slow slightly over the coming decade, its changing com- position should push the value of residential construction to new heights. Now in their peak earning years, the baby boomers will contin- ue to demand expensive, amenity- rich homes. This is likely to be true even for the growing number of baby-boomer couples whose chil- dren no longer live at home.


[User] The importance of minority house- holds to housing demand—particu- larly in rental and existing home markets—continues to mount. As a result of ongoing immigration and higher rates of natural increase, minorities will account for about two-thirds of net household growth over the next decade.

[Assistant] Younger on average than whites, minorities will add 9.2 million households under age 50 and lose only 1.7 million households over that age to death, institutionaliza- tion, and other causes. And thanks to ongoing immigration, the Asian and Hispanic populations will not experience the same baby bust-relat- ed decline in 35-44 year-old house- holds as the white and black popula- tions. With net increases across all age groups, the number of minority households will increase by 7.5 mil- lion over the next decade (Table A-7).


[User] Even in the Midwest where immi- grants are least likely to settle, the foreign-born accounted for one in eight net new households. How changes in the senior popula- tion will reshape housing demand in the future remains unclear. On the one hand, the elderly strongly prefer to remain in the homes they now occupy. If this trend con- tinues, many baby boomers will be making choices about both primary and secondary residences over the next decade that will last through their retirement. Among those with jobs, moves— especially long-distance ones—are less likely. For those delaying retire- ment who have considerable wealth, keeping a primary residence near work and another one else- where for recreational purposes may become a popular choice. 15 Most Seniors Lock in Their Housing Choices Before They Reach Age 60 Age When Households Now in Their 70s Moved Into Their Currrent Homes Age 65 and Over Age 60-64 Age 55-59 Age 50-54 Under Age 50 Percent Source: Joint Center tabulations of the 1997 American Housing Survey. Even with this extraordinary progress, though, the homeowner- ship gap between minority and white households has barely improved. In addition, rising home prices and interest rates are threat- ening affordability. Sustaining the homeownership boom will there- fore be difficult unless income growth continues to outrun house price inflation. Measured on an average annual basis, after-tax pay- ments on a typical home with a 10 percent downpayment and a 30- year fixed loan climbed 4.5 percent in 1999, or $372 after adjusting for inflation. Downpayment costs rose 3.5 percent, or $442. Totaling 11.1 percent between 1994 and 1999, the current rise in real home prices rivals the 11.9 percent runup between 1985 and 1989. The increases are also unusually wide- spread, reducing regional dispari- ties in home price inflation to their lowest levels in decades.

[Assistant] As longer-term immigrants begin to make up a larger and larger share of the foreign-born population, overall immigrant homeownership rates will likely improve.


[User] In the past year, the shift to adjustable-rate loans and other products with a broad spectrum of maturities and terms has been dra- matic. Some 21 percent of loans had adjustable rates in 1999, compared with just 12 percent in 1998. These loans may adjust every one, three, or five years after initial fixed periods that range from one to ten years. The strong demand for products aimed at buyers with impaired cred- it is apparent in the recent surge in subprime lending activity. Between 1993 and 1998, the share of all home purchase loans in metro areas made by subprime specialists increased from under 1 percent to 5 percent, while their share of refinances soared to 12 percent. Diverging vacancy Trends Although apartments dominate new rental construction, single-family homes account for fully one-third of rental housing. Over the 1990s, rental markets for single- and multifamily housing have followed different courses.

[Assistant] The baby boomers are also con- tributing, lifting the share of renter households in the 35-54 age group to 37 percent in 1997. By comparison, the share of renter households in this age range was just 30 percent in 1987 and 26 percent in 1975. As the boomers age during this decade, the share of renters aged 45-64 will likely rise from 22 percent to 26 percent.


[User] the rent/own decision Renting remains the only option for the many Americans who are either unable to qualify for a mortgage loan or to cover the costs associated with buying a home. For millions of others, though, renting is an attrac- tive lifestyle as well as a prudent financial choice. Renting is an especially appealing option for people who expect to move again within a few years because they can avoid the steep transaction costs associated with 24 Multifamily Vacancy Rates Continue to Fall While Single-family Vacancy Rates Rise Percent Single-Family Small Multifamily Larger Multifamily Note: Small multifamily rentals have 2-4 units; larger multifamily rentals have 5 or more units. Source: Census Bureau, Series H-111.

[Assistant] 22 buying and selling a home. On aver- age, it costs 1.5 percent of the pur- chase price to close on a home, and as much as 6.0 percent of the sales price to sell it if a real estate agent is used. Unless house price apprecia- tion in the first few years of owner- ship is enough to fully offset these transaction costs, renting is general- ly a better option.


[User] Given these cost considerations, it is perhaps unsurprising that 49 per- cent of owners have remained in the same homes for 10 years or more, compared with just 12 per- cent of renters. Moreover, some 22 percent of long-term renters live in the New York metropolitan area, where rent control has encouraged a disproportionate share of tenants to stay in their same apartments. In reality, of course, the choice to own or rent involves much more complex considerations than merely financial prudence. Depending on the location, the housing stock avail- able for owning or renting may be quite limited. In addition, the same type of home may not be available as both a rental and as a for-sale unit. As a result, in choosing a com- munity or a unit type, households often implicitly decide between owning or renting regardless of the financial implications. Rental Property Upkeep While rental housing markets have been reviving, their recovery has not yet stimulated higher spending among property owners for upkeep and improvements. Between 1992 and 1999, real spending by home- owners for upkeep and improve- ments rose at a 1.9 percent average annual rate, but real spending by owners of rental units fell at a 2.7 percent average annual rate.

[Assistant] By 2015, the number of renters under age 25 is expected to increase by over a million—a 20 percent gain. Immigrants will continue to play a critical role in rental housing mar- kets. Especially in cities such as New York, Los Angeles, and Miami where the foreign-born tend to settle, demand for rental properties will remain strong.


[User] CBRE forecasts that annual U.S. GDP growth will slow to 2.0% in 2026 with softening labor market conditions and marginally lower inflation averaging 2.5%.

[Assistant] Despite these challenges, commercial real estate investment activity is expected to increase by 16% in 2026 to $562 billion, nearly matching the pre-pandemic (2015- 2019) annual average. Total returns will be income driven. Asset selection and management will be key drivers for returns. Cap rates for most property types are expected to compress by 5 to 15 basis points (bps). Commercial real estate leasing activity will continue to recover in 2026 from its 2024 low. The underlying performance and timing of recovery varies across sectors, asset types and markets. Performance of the office market will vary greatly between newer prime and older secondary space. We expect even more scarcity of available prime space by year-end 2026. Spillover demand to the next tier of space will likely increase in early-recovery office markets. Leasing activity will continue to improve in 2026, surpassing 2019 levels. CBRE expects large users to continue returning to the market. The industrial sector will continue to see a flight to quality by occupiers at the expense of older assets. Annual leasing volume is expected to improve slightly in 2026, driven by reshoring of manufacturing operations and outsourcing of distribution to third-party logistics (3PL) providers. In the retail sector, demand is expected to be driven by expanding grocery, discount and services retailers that rely on physical locations to reach consumers. Retailer success will require precise strategies that align selective growth with evolving consumer behaviors. Overview The multifamily sector is expected to see positive net demand throughout 2026. However, there are still substantial newly delivered apartment units that remain unleased in many markets, particularly in the Sun Belt and Midwest regions. As a result, keeping existing tenants in place will be a top priority for multifamily landlords. Demand for data centers remains strong, with 2026 leasing activity expected to reach an all-time high. Supply growth is increasingly constrained by longer power delivery timelines. We expect continued greenfield development in emerging U.S. markets, particularly along Interstate 20 across the Sun Belt and in markets with less regulation of electricity production. In the healthcare sector, construction completions are expected to drop sharply in 2026, less new supply will support vacancy rate stabilization and continued rent growth for medical outpatient buildings. Occupiers will continue to focus on real estate for cost savings and efficiencies, as higher costs persist and new federal healthcare policies take effect. In the life sciences sector, the remaining construction pipeline of speculative lab/R&D space is expected to be delivered by year-end. Demand for lab/R&D space will be driven by rising industry employment and a capital markets revival. Some properties will benefit from growing alternative sources of demand, such as robotics and other advanced manufacturers that require specialized lab space.


[User] 01 Economy Upside Despite Uncertainty While concerns about the economic impact of tariffs have subsided, new concerns about overinvestment in artificial intelligence (AI), government debt levels and a softening labor market are building.

[Assistant] GDP growth is expected to slow to 2.0% in 2026 from 2.3% in 2025 due to less business investment and consumer spending. Companies will face tough decisions to balance persistent inflation with investments needed for continued growth. Although there were a number of large corporate layoffs in 2025, most companies remain slow to hire and fire. More use of AI will likely play a minor role in labor market dynamics in 2026. We expect labor market conditions to soften as companies carefully reduce headcount. Job growth for the year is expected to slow to 0.3% from the annual average of 1.1% since 1990. This should result in a higher unemployment rate, particularly for younger entrants to the labor market. economy—the consumer. Retail sales growth has slowed, with affluent households carrying a greater share of overall consumption. This dynamic will be even more prevalent in 2026. Marginally lower inflation at 2.5% should alleviate some of the pricing pressure on more value-conscious households. The combination of persistent inflation and higher unemployment will complicate the Federal Reserve’s decision-making. Because price pressures are expected to fade later in the year, CBRE believes the Fed will focus on downside risks facing the labor market and cut the federal funds rate only twice in 2026 to a target range of 3.0% to 3.25%. Aside from elevated inflation, concerns about U.S. debt levels are putting upward pressure on long-term Treasury yields. But the prospect of slower economic growth suggests that Treasury yields could end the year below 4%. Regardless, the yield curve will likely steepen, allowing financing via shorter- term credit to help drive commercial real estate investment volume. 01 Implications for Real Estate The Bottom Line Occupiers Investors — Act Early to Secure Superior Space Constraints on new supply across many asset types mean quality space will be more difficult to find, especially in prime locations. Early renewals and preleasing of new construction are essential to procuring the right space when it is needed. — Consider External Pressures Beyond Real Estate Labor availability, power constraints and regulatory hurdles will increasingly shape location decisions. Proactive planning and local market knowledge will be critical to secure the right space and resources in a timely manner, especially for infrastructure-heavy facilities. — Prepare for Competitive Markets Be ready to act with conviction in 2026. We expect increased investment activity, with investors aggressively pursuing high-quality opportunities. — Pricing Presents Unique Opportunities It’s an opportune time to realize gains from existing investments and redeploy capital into a market offering pricing opportunities. The highest returns of this cycle will likely be realized over the next several quarters. — Wider Opportunities Across Risk-Return Spectrum While we expect returns will be largely driven by rental income, there are opportunities in both debt and public equity. Look across the capital markets spectrum for the best risk-adjusted returns. — Uncertainty Remains Constant We expect that financial markets will remain volatile due to government and economic policy, particularly with regard to trade. Our baseline forecast anticipates an environment that will support real estate investment, making it important to look beyond the headlines. 02 Capital Markets — U.S. commercial real estate is affordable: Pricing for commercial real estate is relatively cheap compared with other asset classes. Investors continue to broaden their targets for capital allocation in commercial real estate, with retail and office expected to see notable volume growth in 2026. — Total returns will be driven by income in 2026: With benchmark rates expected to remain relatively elevated, returns will be income driven. Market/asset selection, due diligence and asset management will be key ingredients for success. — Debt market will continue to function with tight spreads: We expect debt markets to remain healthy in 2026, with all sources remaining active. There will be ample liquidity due to sizable amounts of dry powder from both public and private investors. The weight of capital presents an upside risk to our forecasts.


[User] — Gateway markets and AI/financial hubs will lead the recovery: Companies are once again making long-term leasing commitments and requiring workers to return to the office.

[Assistant] Gateway markets with a strong presence of financial and AI-related companies will continue to offer compelling investment opportunities. 02 Outlook Commercial real estate investment activity is expected to continue recovering in 2026. With market sentiment potentially buoyed by the prospect of additional rate cuts and long-term yields around 4%, we expect a 16% increase in investment volume this year. Cap rates for most property types are expected to decrease by 5 to 15 bps. Good-quality assets are expected to see greater cap rate compression. However, total returns will largely be driven by income. Consequently, asset selection and management will be key drivers for returns this cycle. The office market continues to recover, with strong investment volume growth from a relatively low base. Less new supply and outperformance of high-quality space will persist. We expect investor interest will broaden to include well-located Class A properties, as spillover demand from prime trophy assets occurs. Lagging office markets, including Chicago and Los Angeles, are bottoming out, with Boston, Seattle and Denver expected to follow by year-end 2026.


[User] Industrial properties continue to work through excess supply that materialized following the pandemic- era construction boom. Nevertheless, industrial remains a preferred property type for investors. Modern assets in key metros with population growth and transportation hubs will outperform. Renegotiation of the U.S. Mexico Canada Agreement in 2026 should also result in intriguing investment opportunities.

[Assistant] Commercial Real Estate Investment Volume Source: MSCI Real Assets, CBRE Research, Q4 2025. Office Industrial Retail Multifamily Hotel 02 Retail continues to show strength across the board with healthy fundamentals amid little new supply. Multifamily is also working through a supply overhang, particularly in some markets across the Sun Belt and Mountain regions. Midwestern markets and some gateways continue to maintain healthy fundamentals. Cap rate spreads remain tight, indicating normalizing rent growth and weight of capital. Investors will find opportunities to dispose of assets and realize gains, which can then be redeployed into high-growth markets as supply and demand come into better balance in late 2026. Hotels will also present attractive investment opportunities in 2026. We expect fundamentals to improve as new supply diminishes and RevPAR improves. Nevertheless, the recovery in fundamentals will be uneven and more focused around high-end demand. Furthermore, operational prowess will be especially important in a business where controlling costs is complex and total returns are more dependent on income. While alternative lenders are expected to remain active, the reemergence of banks in the debt market is expected in 2026, particularly as the yield curve steepens. Overall, we expect all sources of debt capital to remain active. CBRE expects lending spreads over benchmark rates will remain tight, barring any unforeseen shocks to financial markets. While lending standards remain prudent, we may see loan structures and covenants ease as lenders exhibit an increased willingness to provide commercial real estate financing. We expect that many maturing loans will be extended to 2027 and beyond. Overall, the commercial real estate lending environment will remain healthy, with abundant liquidity in 2026 even as default rates increase for obsolete assets.


[User] 03 Office — Supply constraints will contribute to declining vacancy: 2025 was the first year that inventory removals (demolitions and conversions) outpaced new completions since CBRE began tracking the market in 1988. The reduction in supply is beginning to rebalance markets.

[Assistant] Although 2025 net absorption was 14% below the 30-year average, the steep drop-off in new supply more than compensated to drive the first year-over-year decline in vacancy in over five years. — Demand for prime assets will spill over to the next tier of product as availability dwindles: As the prime vs. nonprime performance gap is near a record high, occupiers will continue to focus on the highest-quality assets. The urgency to lock in quality space, along with significant tenant leverage for most lesser-quality assets, will further drive this divide. The next tier of assets—those located adjacent to prime buildings with well- positioned amenities (e.g., proximity to public transportation, on-site food & beverage options)—is beginning to see increased demand. Prime buildings in downtown areas registered a 1.5-percentage-point drop in vacancy since year-end 2024 vs. a 0.5-percentage-point decline in prime suburban buildings. Although downtown prime vacancy (14.5%) remained higher than suburban prime vacancy (13.6%) as of Q3 2025, we expect to see stronger downtown leasing activity in 2026.


[User] — Urban gateway markets are poised to rebound: Activity among large urban users is beginning to increase after four years of under-represented market share. Downtown leasing comprised just 30% of activity from 2020 to 2024 despite making up 35% of inventory. In 2025, that share ticked up to 40% of all activity. We may find the market has underestimated the value of agglomeration and talent access offered by urban gateway hubs.

[Assistant] We remain optimistic about gateway markets like Manhattan, San Francisco and Dallas, which are positioned to see continued leasing growth in 2026. — Occupiers will remain cautious about AI’s impact on space planning: Occupiers have signaled a cautious approach to their space planning. Although AI has not yet impacted their real estate decisions, it could happen soon. Occupiers will remain challenged to redefine the traditional workspace paradigm and its ability to attract employees. Growing adoption of AI will only underscore the need for occupiers to deliver purpose-driven offices. Buildings capable of leveraging the latest technologies while also offering tenants best-in-class design and amenities will benefit the most.


[User] Vacancy Rate (%) MSF Completions (L) Net Absorption (L) Vacancy Rate (Current Forecast) (R) Vacancy Rate (November 2024 Forecast) (R) Forecast 03 Office Outlook The office sector should continue to build on the current momentum, though the crawl back to equilibrium will be long. We expect at least the same amount of occupier demand as last year, albeit for less available top-quality space. Coupled with little new construction, this is expected to lower the overall vacancy rate. As square-foot-per-employee ratios have been stable for over two years, the relationship between employment and absorption is becoming more balanced. The location and magnitude of job growth will in part determine which markets recover first, with the finance and technology industries expected to see better-than-average job growth in 2026.

[Assistant] Annual leasing activity is expected to surpass 2019 levels. In particular, large users will likely continue returning to the market. More certainty about space needs will continue to drive activity, with an outsized share of space commitments in central business districts. Manhattan, San Francisco, Dallas, San Jose and Charlotte will lead for rent growth, while markets like Los Angeles and Seattle return to positive growth in 2026.


[User] As users continue to favor better-quality assets and prime construction activity remains well below average, we expect prime vacancy to reach pre-pandemic levels by the end of 2027. Accordingly, the next tier of assets will begin to see spillover demand amid increased occupier urgency to lock in the highest quality space available.

[Assistant] Annual leasing activity is expected to surpass 2019 levels. In particular, large users will likely continue returning to the market. 04 Industrial — Industrial leasing activity will rise slightly in 2026: Tenants will continue to renew space at record levels, expand domestic manufacturing capabilities to mitigate tariff-related costs, upgrade to a plethora of available first-generation distribution facilities or outsource distribution to 3PL providers.


[User] — Vacancy will stabilize due to a lack of speculative completions: Despite minimal net absorption due to many lease expirations in older facilities, vacancy will stabilize in the mid-6% range.

[Assistant] — Incentives for early lease renewals will increase: Older industrial space is being returned at a robust pace, evidenced by the more than 100 million sq. ft. of negative absorption in pre-2020 buildings last year. To encourage earlier renewals by occupiers, many landlords are offering more generous tenant-improvement allowances and longer free-rent periods. On average, occupiers signed renewals 219 days prior to expiration in 2025, nearly 30 days sooner than in 2024. We expect this trend to continue in 2026. — Mega big-box occupiers will want to quickly upgrade their space: Availability of first-generation facilities in certain markets is expected to quickly dwindle. Louisville, Columbus, Greenville, Chicago, Phoenix, the Inland Empire and Kansas City all have a limited amount of available first-generation blocks of sq. ft. or more. Lease expirations in this size range will accelerate over the next three years, increasing the potential tenant base.


[User] (f) Renewal Share Sq. Ft. (Millions) New Leases (msf) Renewals (msf) Renewal % of Total Outlook CBRE forecasts a 5% year-over-year increase in industrial leasing activity to nearly 1 billion sq. ft. Lease renewals will account for more than 35% of total volume, well-above the historical average of 24%.

[Assistant] New leasing activity will remain on par with 2025, driven by a flight to quality and more outsourcing of distribution operations, as well as continued reshoring of manufacturing operations. New leasing activity will be driven by a flight to quality to take advantage of taller clear heights and stronger power or outsource their distribution operations to 3PL providers. We estimate that 3PLs will account for more than 35% of leasing activity this year. More reshoring of manufacturing operations is expected to mitigate tariff-related costs. Because many 3PLs require shorter lease terms and more flexible spaces, often with a smaller footprint than retailer distribution operations, outsourcing will continue to help retailers and manufacturers realize a more efficient distribution process. Despite a flight to quality, speculative development will be minimal in 2026 due to an oversupply of vacant first-generation space and difficulty obtaining construction financing. However, build-to-suit development will increase to meet more specialized occupier requirements. Rent growth will remain subdued as the industrial sector adjusts to shifting trade policies and slower economic growth. Despite the volatility, rents in gateway markets like Atlanta have begun to turn the corner. Secondary markets such as Nashville and Louisville are expected to maintain relatively strong rent growth due to reliance on domestic regional distribution that generally is not affected by international trade volatility. 05 Retail — Available supply scarcity will continue: Space availability will remain near historic lows in 2026, with only a slight uptick where big-box closures occur. New construction will remain limited due to financing constraints, high costs and little land availability. These factors will help to limit any rise in space availability even as demand moderates. — Modest positive absorption is expected: After uneven demand in 2025, net absorption is expected to stabilize in 2026. Expansions by grocery, value and service-oriented retailers should largely offset continued restraint among discretionary retailers, keeping occupancy broadly stable. — Performance will diverge more sharply by format and location: Grocery-anchored centers, neighborhood & strip centers and high-income suburban corridors are positioned to outperform for both occupancy and rent growth. Weaker malls and older power centers will continue to lag due to higher capital improvement needs and slower backfill activity widening the gap in availability and net asking rents. — Rent growth will continue in well-located open-air centers due to limited new supply and tight occupancy conditions: Older assets may rely more on concessions and tenant-improvement allowances as retailers become more selective and expansion plans moderate. Availability Rate (%) MSF Completions (L) Net Absorption (L) Availability Rate (R) Outlook The U.S. retail sector enters 2026 with relatively strong fundamentals but appears to be transitioning to a more selective phase of the real estate cycle. Retail fundamentals stabilized in late 2025 as net absorption turned positive and the overall availability rate held near a multi-year low due to more targeted productivity and data-driven tenancy considerations.


[User] 05 Retail Retail fundamentals stabilized in late 2025 as net absorption turned positive and the overall availability rate held near a multi-year low.

[Assistant] 05 Retail We expect net absorption to remain positive this year, driven by grocery, discount, off-price and service retailers that rely on physical locations to reach consumers. Full- and quick- service restaurants are also expected to remain active users of space, especially in high-traffic suburban corridors and mixed-use environments. Elevated buildout costs, shifting labor dynamics and thinner margins will cause retailers to pursue fewer high-performing sites, reinforcing their selective growth strategies. Availability may rise in weaker formats but remain tight nationally due to limited new construction.


[User] Overall rent growth will be modest in 2026, easing from the brisk pace during the post-pandemic recovery, with most open-air centers posting increases. Strong suburban submarkets and grocery-anchored centers will outperform, supported by high occupancy and minimal new competitive supply. However, tenants are becoming more cautious and decision-making is taking longer as sales growth moderates. This will place greater emphasis on deal structure, with concessions and tenant-improvement allowances playing a larger role in many cases.

[Assistant] 06 Multifamily — Barriers to homeownership will continue to support multifamily demand: Challenges for would-be homeowners in 2026 include a 105% monthly premium to buy vs. rent, an estimated shortage of 3.4 million single-family homes, high mortgage interest rates and elevated home prices. With more than half ($7 trillion) of the outstanding $13 trillion of mortgages financed at interest rates of less than 4%, fewer existing homeowners will be willing to sell, which in turn will drive multifamily lease renewals. — Demand will remain soft: Softening renter demand due to tepid job growth is expected to continue in the first half of 2026. A slow-to-hire, slow-to-fire job market with low turnover is expected to reduce domestic migration and household formation and limit momentum in high-growth markets in the near term. — Operators will prioritize occupancy over rent growth, supported by strong renewals: Effective asking rent growth is expected to remain low for much of 2026. Multifamily operators are strategically choosing to maintain occupancy rates rather than aggressively pursuing rent increases on newly signed leases. The near-term focus on offering significant concessions to new tenants is supported by historically strong renewal rates (57% of all leasing activity, up from 51% in 2015 and 48% in 2005) among existing residents, which is expected to increase further this year. — Investors could be put off by rent controls in certain markets: Rent control initiatives have been key components of recent elections in markets such as Boston, Denver, New York and Seattle. If implemented, these initiatives will likely lead to lower investment activity and potentially constrain market-level liquidity in 2026 and beyond. Less new development as a result will limit opportunities for new renters.


[User] 06 Multifamily Outlook Labor market challenges, coupled with persistent inflation and relatively high interest rates, have weakened consumer sentiment and will weigh negatively on household formation and new multifamily leasing activity in the first half of 2026.

[Assistant] Despite multifamily vacancy rates largely stabilizing nationwide, year-over- year rent growth is expected to continue lagging pre-pandemic levels in 2026 due to economic headwinds and the large amount of new supply that remains available for lease, particularly in the Southeast, South Central and Mountain regions. Longer term, we expect these regions to outperform for job creation, inbound migration and multifamily performance, all of which will support future investment activity. The overall multifamily vacancy rate should continue to fall as more units are absorbed. With near-term operational challenges in high-supply markets, cap rates are expected to remain stable in 2026 and show incremental compression in following years. Interest rate and inflation stability, competitive debt markets, lower economic uncertainty and recovering investment volumes will underpin this outlook for cap rates.


[User] While the current overall vacancy rate of 4.4% is well below the 2010-to-2019 average of 5.2%, it is expected to rise over the next several quarters as renter demand does not fully offset the remaining supply pipeline. Operators are strategically focused on preserving occupancies by offering new tenants certain discounts. This will persist at least until the stronger seasonal leasing in Q2 and Q3 alleviates pressure on occupancy. Renters are renewing their existing leases at historically high levels.

[Assistant] Not only do renewals reduce turnover costs and the risk of months of vacancy, but they dramatically outpace new leases for rent growth. 06 Multifamily Renters are renewing their existing leases at historically high levels (57% of all leasing activity). Not only do renewals reduce turnover costs and the risk of months of vacancy, but they dramatically outpace new leases for rent growth. Blended rent growth,1 which combines asking and renewal rents, is expected to remain higher than asking rent growth for new leases alone. The difference is especially pronounced in markets like Austin and Denver, where asking rent growth is projected to remain negative in 2026 yet blended growth will turn positive. More generally, the difference is largest in markets that depend the most on domestic migration and employment growth. Blended rent growth will remain a key metric for underwriters, with renewals accounting for a larger share of all leasing activity.


[User] 07 Data Centers U.S. data center demand continues to reach unprecedented levels and 2026 is on track to set a new record for leasing activity. Vacancy remains at historic lows and pricing is at all-time highs. However, new supply is becoming increasingly difficult to deliver.

[Assistant] F 07 Data Centers We expect continued greenfield development in emerging U.S. markets, particularly along Interstate 20 across the Sun Belt and in deregulated electricity markets. Regions with substantial natural gas resources remain especially attractive, with current commodity prices materially lower than peaks seen in 2003–2008 and in 2022. Alabama, Mississippi, Louisiana, Georgia, Florida, South Carolina, North Carolina, Virginia and Pennsylvania are all positioned to remain priority development locations. Preleasing activity is expected to remain in the mid-70% range, compared with the historical norm of 40% to 50%. Even with a 43% year-over-year expansion in primary-market inventory, preleasing demand shows no signs of cooling. Preleasing activity is expected to remain in the mid-70% range, compared with the historical norm of 40% to 50%. — Federal healthcare policy presents risk and opportunity: The One Big Beautiful Bill Act includes more than $1 trillion in healthcare spending reductions. As a result, outpatient space demand will increase as providers seek more affordable healthcare delivery options and restrictions are eased on outpatient services. — AI will drive new efficiencies in healthcare real estate: U.S. Census Bureau surveys show AI adoption by healthcare providers is accelerating. This technology offers significant potential to improve patient volume management and optimize existing space utilization.


[User] Rent (L) Vacancy (R) NNN Rent Vacancy Rate MOB construction completions are projected to drop by 26% in 2026 to the lowest level in over a decade, reducing occupier options. Deliveries of on- campus hospital facilities will contract even further. A more uncertain and less favorable U.S. healthcare policy, coupled with higher land and construction costs, has many hospitals, healthcare systems and providers less willing to make significant commitments or assume development risk. 08 Healthcare The scarcity of available supply will support tight vacancy and continued rent growth for MOBs this year. MOB vacancy will stabilize within its typical range of 9.5% to 10.5% over the past 10 years. The average MOB rent is projected to climb to a record high in 2026 as rent growth accelerates to 1.4% from 0.9% in 2025. An ongoing industry pivot toward outpatient care and low vacancies will drive rent growth in select markets, mostly in the South and West.

[Assistant] Healthcare occupiers are increasingly focusing on real estate for savings and efficiencies, as industry cost pressures persist and new federal healthcare policies take effect. Occupiers will continue to pursue lower-cost options for healthcare delivery (i.e., MOBs), including conversions of obsolete office and retail buildings. The range of options reflects the flexible approach that healthcare providers, particularly large systems, will need to take to ensure that their portfolios are efficient and cost effective. Financially sound healthcare systems will continue to lease build-to-suit MOBs with long lease terms.


[User] 09 Life Sciences — Less construction of lab/R&D properties will help stabilize a supply and demand imbalance: At 6 million sq. ft., the current construction pipeline of lab/R&D properties is the lowest since early 2019 and down significantly from the peak of more than 37 million sq. ft. in 2023.

[Assistant] — Biotech companies will boost life sciences real estate demand: The State Street SPDR S&P Biotech ETF (XBI), one of the biotech industry’s bellwethers for equity valuations, surged dramatically in H2 2025. This index’s previous performance has foreshadowed greater leasing demand for lab/R&D space.


[User] Life Sciences The remaining construction pipeline of speculative lab/R&D space will be delivered this year, stabilizing supply and demand.

[Assistant] Any remaining life sciences space under construction will be limited to fully leased build-to-suit projects.


[User] 3 Many Low-Income Married Couples Now Rely on Both Spouses' Incomes to Afford Housing Notes: Low income is defined as less than 80% of area median. Severe cost burden is defined as paying more than 50% of income for housing. Source: Joint Center tabulations of the 1989 and 1999 American Housing Surveys. 2001 The State of the Nation’s Housing A fter a remarkably long and steady expansion, housing production slowed in 2000. Even so, strong income growth kept house prices and rents appreciating faster than inflation, and falling interest rates late in the year helped push home sales to near- record levels early in 2001. Over the course of the 1990s, both job and housing growth were particularly strong in lower- density counties within and adjacent to metropolitan areas. As a result, growth in suburban areas continued to outstrip that in cities even in most metropolitan areas where city populations increased. Housing Markets I Production and sales slowed slightly in 2000, but only manufactured housing showed a sharp downturn. The slow- down in construction has, however, spread to 42 states. I House prices continued their ascent, bringing the inflation- adjusted increase between 1993 and 2000 to 16 percent. 4 Housing Has Been Resilient Despite the Weakening Economy Notes: Real GDP growth is the difference in real GDP (SAAR) in 1996 dollars between the first and fourth quarters. Employment growth is for total non-agricultural employment. Sources: Consumer confidence is the Conference Board's index. Real GDP growth is from Bureau of Economic Analysis, Table 1.10. Employment growth is from Bureau of Labor Statistics, Form 790. New home sales are from the Census Bureau, Series C-25. Existing home sales are from the National Association of Realtors. 5 With the production of more expensive homes and the persistent strength of remod- eling activity, residential fixed investment managed to hold steady. The value of con- struction put in place, adjusted for inflation, fell just 1 percent to $332 billion. New home sales rebounded from a setback earlier in 2000, exceeding an annualized rate of 1.0 million units by December. Existing home sales also revived in the first quarter of 2001, rising to a 5.28 million unit annual rate. A Reversal of Roles Housing typically leads the economy into recession as inter- est rates rise, job growth slows, and inventories accumulate. The softening that began in the last half of 2000, however, has been unusual in several ways. At 7 percent in the first quarter of 2001, interest rates were lower than those prevail- ing prior to and during the most recent recessions or the 1995 cooldown. Indeed, the Federal Reserve’s successive interest rate cuts sparked a flurry of refinancing, enabling the housing sector to help offset the drag on economic growth from rising energy prices and falling stock prices.

[Assistant] Assuming lenders confront the challenges of establishing a steady stream of credit, the manufactured home segment will continue to play a central role in meeting low-income homeownership demand. Nonetheless, it remains to be seen whether manufactured housing will again serve as large a proportion of homebuyers as it did in the credit environ- ment of the 1990s. Source: Census Bureau, Manufactured Housing Statistics.


[User] Construction Slowdown Spreads While housing markets appear relatively strong overall, only eight states issued more housing permits in 2000 than in 1999. Home building activity was up pri- marily in states that only recently recov- ered from the last recession, such as Cali- fornia and New York. California in fact accounted for over nine percent of all per- mits issued nationwide last year. The tech- nology slowdown and the state’s current energy crisis, however, place California’s housing expansion at risk. In the South, new construc- tion in every state except Georgia was one or two years past recent peaks. In the Midwest, South Dakota was the only state where housing production did not stumble as a result of the broader economic slow- down. Permits in more than half the Western states continued to drop. The Northeast was split, with production in New York, New Jersey and New Hamp- shire still climbing. Home Prices Keep Rising Despite the chill in construction activity, home prices continued to appreciate in most areas of the country in 2000. Nationally, the increase in prices outpaced general inflation for the seventh consecu- tive year, surpassing the 1980s runup in both duration and magnitude. Indeed, inflation-adjusted house prices have soared 16 percent since 1993, compared with 14 percent between 1984 and 1989. With the economy showing signs of weak- ness, concerns over the sustainability of home price increases have been growing. Such concerns are understandable given the 1980s experience. During that cycle, 18 of the nation’s 50 largest metropolitan areas posted price appreciation of 20 per- cent or more above inflation. Following a prolonged period of job losses and mount- ing unemployment, 15 metropolitan areas then saw home prices depreciate by at least 10 percent. In the 1990s, 24 met- ropolitan areas experienced home price appreciation of 20 percent or more. The contraction in local economies would have to be much more severe than it has been so far, howev- er, to trigger similar price declines this time around. Suburbs Continue to Outperform Cities As it has for decades, population growth in the suburbs exceeded that in central cities in most of the nation’s metro- politan areas. With few exceptions, the gap between subur- ban and city growth rates was generally smaller in the South and West where many cities encompass annexed, low-densi- ty areas quite distant from the original urban core. Among the exceptions were Oklahoma City, San Antonio, Greens- boro and Charlotte. This trend also holds for minorities. Even though minority population growth—spurred by natural increases and immi- gration—prevented many central cities from losing population in the 1990s, more minority movers settled in the suburbs than in the cities. Nevertheless, cities as a group did experience their strongest population growth in decades. Fully 16 of the 31 cities in the largest metropolitan areas that lost population in the 1970s or 1980s (or both) gained population in the 1990s. Among the 16 were some of the nation’s largest and oldest cities, such as New York, Chicago, and Boston. Most of the 15 that continued to lose population were concentrated in the Northeast and Midwest—including Hartford, Philadelphia, Pittsburgh, Cleveland, Detroit, and St. Louis. The building activity that has occurred in many cities has largely served to offset losses in the lower-quality housing stock. There are, however, a few exceptions. Chicago’s addi- tion of nearly 20,000 units, for example, signaled both the resumption of population growth after decades of loss and the return of some higher-income households. While such gentri- fication is often welcomed as a way to improve the mix of urban incomes, it can also displace lower-income residents. Indeed, gentrification has resurfaced as a major concern in many metropolitan areas ranging from Atlanta, New York and Boston to Chicago and Denver. Mounting Development Pressures Development has been especially intense in less populated areas of the country, where strong job growth has enabled people to work at ever-greater distances from tradi- tional employment centers. Between 1990 and 1998, average job growth exceeded 15 percent in the nation’s low- and moderate- density counties. Soaring employment in outlying areas has fueled equally strong housing demand. In response, inflation-adjusted median home prices in rural suburbs climbed 18 percent between 1985 and 1999—well ahead of the 8 percent increase in urban portions of metropolitan areas. Rural areas outside metropolitan areas posted the largest increase, with real prices up 21 per- cent over the same period.

[Assistant] The vigorous pace of home building has stirred political activism at both the state and local levels to curb growth in outlying areas and closer-in, low-density suburbs. These efforts are primarily intended to preserve open space and to slow or halt further development. As additional growth limi- tation measures are approved, land costs will rise even more sharply and housing affordability in less developed areas will continue to erode. These pressures underscore the importance of finding ways to strike a balance between the desire to pre- serve open space and the need to expand the supply of affordable housing.


[User] 9 Job Growth Remains Centered in Low- and Moderate-Density Areas Notes: Each bar represents one-fifth of the US population as of 1990. The number of counties represented by each bar varies. Source: Joint Center tabulations of the Regional Economic Information System (REIS) database. 2001 The State of the Nation’s Housing H ousing demand is shaped primarily by shifts in the age and family composition of the adult population, immigration, and income and wealth trends. Aging of the population and ongoing immigration should keep household growth over the decade at or above the 11.5 million pace of the 1990s. In addition, immigration will serve to lift the minority share of net household growth to roughly two-thirds. While age and family composition shape housing preferences, the distribution of income and wealth are what determine the ability of households to act on their preferences. With even greater inequalities in wealth than in income, and housing costs rising faster than gen- eral inflation, access to wealth will increasingly differentiate homebuying power. Given their lower average incomes and limited access to wealth, minorities will thus remain at a disadvantage in the marketplace. Households comprising three generations of family members have also continued to increase in number in recent years. In 1980, only 1.3 million children under the Demographic Drivers 9 I Household growth should meet or exceed the 1.15 million annual level of the 1990s as more echo boomers reach adulthood and immigration continues. I While accounting for most of population growth in many central cities, minori- ties are also joining the exodus to the suburbs and beyond. Whether this doubling-up phenomenon primarily reflects an affordability squeeze or signals an emerging social trend is unclear. If it continues, however, household growth could again fall short of expectations. Future immigration flows and their impact on household formation also add to the uncertainty. In the absence of age- and family-specific data from the 2000 Census, the Joint Center currently estimates that net household growth will pick up slightly to 1.17 mil- lion annually over the next 10 years.

[Assistant] Shifting Age and Family Composition While the pace of household growth may be uncertain, its composition is not. Not surprisingly, the baby boomers will continue to drive the most significant changes in the age and income distribution. Although the total number of baby-boomer households will start to fall off as the oldest among them reach 65 in 2010, the number of households aged 45 to 64 will climb by more than 10 million over the decade (Table A-5). The aging baby- boomers will boost spending on home remodeling, demand for luxury apart- ments, and purchases of new, tradeup, and second homes. Members of the baby-bust generation, now in the prime childbearing and childrearing years, will also add modestly to the demand for starter and tradeup homes, as well as for remodeling services. For their part, the parents of the baby boomers are reaching old age in better health, and with better prospects for longer lives, than any generation before them. As a result, the ranks of household heads over the age of 75 are expected to increase by roughly 1.3 million over the decade. This growth implies rising demand for housing that allows seniors to age safely in place and for specialized facilities such as assisted living and continuing care communities. The changing age profile of the population will also drive changes in the composition of households over the next 10 years. With many of the baby boomers becoming empty- nesters and their children starting to marry, the fastest growing household type will be married couples without minor children living at home. Strong growth among both the senior and young adult populations, together with low rates of remarriage, will make single-person households the second fastest-growing household type. Of the nearly 5 mil- lion one-person households added over the decade, almost one-third will be over the age of 65. The numbers of single- parent households and married couples with children are expected to hold steady.


[User] The influx of immigrants, together with losses of older white households, has pushed minority household growth far ahead of white household growth in both absolute and relative terms. Immigrants contributed more than 50 percent of His- panic and over 80 percent of Asian house- hold growth between 1996 and 2000. By comparison, immigrant households accounted for less than 20 percent of the growth in non-Hispanic white households and just over 10 percent of the growth in non-Hispanic black households. The impact of immigrants and minorities has been particularly profound in central cities (Table A-3). Indeed, most major cities that gained net population in the 1990s— including New York, Providence, Houston, Minneapolis, and Salt Lake City—would not have done so without the impressive growth of minorities. Moreover, minorities are now the new majority in several cities such as Boston, Philadelphia, Norfolk, Milwaukee, Sacramento, and San Diego. born reach young adulthood. The age structure of the minor- ity population is decidedly younger than that of the white population.

[Assistant] Hispanics, Asians, and blacks are thus expected to account for nearly 80 percent of population growth and about 65 percent of household growth in each of the first two decades of the 21st century (Table A-8).


[User] The homeownership rate for female-headed households stood at 53 percent in 2000, up from 48 percent in the early 1980s. Between 1985 and 1999, the number of female first-time homebuyers under the age of 45 living alone jumped more than 65 percent. This increase boosted the homeownership rate for this group to 29.6 percent—up from 22.6 percent in 1985 and rivaling that of their male counterparts. Mean- while, the number of female renters under 45 living alone increased from about 3.1 million to nearly 3.8 million. The share of married women contributing to household income also increased considerably to 63 percent in 1999, compared with 52 percent in 1981. Women’s earnings have become especially critical for relieving the heavy housing cost burdens of low-income families and for enabling moder- ate-income families to qualify for homeownership. Income and Wealth Disparities Widen Despite the longest expansion in the nation’s history, the dis- parity between the richest and poorest households widened in the 1990s. From the start of the recovery in 1992 through 1999, household incomes (adjusted for inflation) at the top 5 percent of the distribution increased by more than 20 percent, while incomes at the bottom 5 percent rose just over 10 percent. At the same time, incomes at the top 1 percent grew almost 50 percent, while those at the bottom 1 percent declined by about the same amount. Although blacks and Asians made particu- larly strong gains, their incomes—along with those of Hispan- ics—continued to lag those of whites by wide margins. Household wealth is more unevenly distributed than income. In 1998, the top one percent of households held more than one-third of the nation’s household net wealth. The bottom half held just three percent. Moreover, the median wealth of black and Hispanic households was less than one-fifth the median wealth of white households. The distribution of wealth has important implications for housing demand. Because white households have more accumulated wealth than minority households, they can make substantial financial gifts to their children. Nearly 17 percent of white households have received assets from their parents, compared with only 5 percent of minority households. Moreover, the amounts minorities typically receive are considerably lower than those whites receive. These patterns reinforce dif- ferences in homebuying power, adding to the advantages of white households in the housing market. 2001 The State of the Nation’s Housing T he number of net new homeowners has climbed by more than eight million since 1994. Employment and income growth, modest mortgage interest rates, innovative mortgage products for low-income buyers, and expected home price appreciation all contributed to the ownership rally. Although consumer confidence weakened and job growth slowed at the end of last year, nearly 1.2 million net households were added to the ranks of homeowners. This growth pushed the national homeownership rate to a record 67.4 percent in 2000. Minority and Low-Income Gains Minority households continued to lead the growth in homeownership in 2000. Although representing less than one-fifth of all owners, minorities contributed two-fifths of the net gain between 1994 and 2000. The impressive 24 percent net increase in black owners and 39 percent net gain among Hispanic owners far exceeded the 9 percent growth among white owners. Nevertheless, the combined gain in black and Hispanic owners (1.2 million each) amounted to less than half that in new white owners. 15 Strong Household Growth Has Driven the Increase in Minority Homeowners Since 1994 Notes: Whites, blacks, and Asians/others are non-Hispanic. Hispanics can be of any race. Source: Joint Center tabulations of Census Bureau Housing Vacancy Survey, Prices and payments are in 2000 dollars. Source: Table A-4. Rising unemployment could also jeopardize the ability of millions of two-earner households to meet their housing costs. More than 30 percent of the 1.2 million low-income families with both spouses employed who bought homes between 1997 and 1999 spent more than half their incomes on housing (including mortgage payments, property taxes, insurance and utilities). If all the wives in these couples lost their jobs, the share with such heavy cost burdens would increase to 45 percent; if all the husbands lost their jobs, the share would jump to 69 percent. The increased presence of subprime lenders in the refinance market, particu- larly in historically underserved areas, is troubling. Moreover, 18 percent of high-income minority homeowners refinanced their mortgages with a subprime lending spe- cialist—the same share as low-income white owners. Such segmentation in the subprime refinance market has raised concerns about minor- ity access to conventional refinance lenders that offer lower rates and fees.

[Assistant] Demographic Forces Favor Homeownership Although no longer adding net new households, the baby boomers will continue to swell the ranks of homeowners dur- ing the next decade. As they reach the ages of 45 to 64, over 3 million baby-boom households will likely make the shift from renter to owner. This growth will be fueled by delayed homebuying among married and remarried couples, financial windfalls from inheritances, and rising homeownership rates among the never-married and divorced.


[User] EXECUTIVE SUMMARY Despite the 2001 recession and weak ensuing recovery, by most measures 2002 was the strongest year for housing on record. Residential investment, home sales, homeownership rates, aggregate home equity, and total mortgage debt all hit new highs last year. Anemic growth has nevertheless taken its toll, sending mortgage delinquency rates up while pushing rents in some areas down.

[Assistant] When the economy regains momentum and the lingering effects of the recession subside, housing is well-positioned for another solid decade. Median incomes and wealth for all age groups are higher today than ten years ago. These gains, together with continued strong immigration, should lift household growth and housing investment above 1990s levels. Nevertheless, both low- and moderate-income households will continue to have difficulty finding affordable housing.


[User] Average annual percent change, Home Values Have Risen in Line with Income Growth evidence, though, the housing sector is unlikely to lead the economy into a more robust recovery. History demonstrates that few localities experience the kind of concentrated job losses that precipitate severe home price deflation. Over the past 15 years, fully 53 of the 100 largest metropolitan areas have not experienced a single year of declining nom- inal home prices. Most areas, in contrast, have experienced slow deflation in real home prices following prolonged run-ups. In fact, real prices in 58 of the 100 largest met- ros have fallen ten percent or more at least once since 1987. In about a third of these locations, however, the real home values of owners who bought at least two years before the peak exceeded their purchase prices even at the bottom of the real declines. NEAR-TERM VULNERABILITIES Despite this remarkable buoyancy, housing market risks have intensified in recent years. Job losses have forced more mortgage borrowers into foreclosure, increased the number of homeowners spending half or more of their incomes on housing, and softened some rental markets. In addition, expansion of mortgage credit to borrowers with past payment problems has elevated foreclosure risks. Finally, increased mortgage debt levels and growing shares of homebuyers with high loan-to-value ratios have raised concerns about the amount of debt carried. As for rental markets, the problems arise largely from the weakness of the economy and should subside once a sus- tained expansion begins. Although three-month absorp- tion rates on newly constructed units are at 30-year lows, and overall rental vacancy rates have been rising in some areas, many markets remain in balance. Two risks, however, could lead to more serious problems if the recovery stalls. One is the growing number of loans to borrowers with weak credit histories. Though serving 2 The second serious risk factor is the dramatic jump in the number of homeowners spending more than half their incomes on housing. About 7.3 million homeowners reported cost burdens of this severity in 2001, up from 5.8 million in 1997. If more job losses occur, some home- owners in the bottom two income quintiles—who make up 84 percent of these vulnerable homeowners—could ultimately face the loss of their homes. LONGER-TERM OPPORTUNITIES While economic and geopolitical uncertainties cloud the near-term outlook, the underpinnings are in place to sup- port another strong decade for housing. Household growth, the primary driver of housing demand, may well exceed 12 million between 2000 and 2010.

[Assistant] Immigrants are expected to contribute more than one-quarter of this net increase and minorities fully two-thirds. The growing influence of minorities on housing markets was already evident in 2001, when they accounted for 32 percent of recent first-time buyers and 42 percent of all renters. Over the next decade, immigrants are also expected to fan out from the handful of metro areas that are traditional gate- ways for foreign-born households.