[User] Homebuilders estimate that the newly imposed tariffs on construction materials will increase new home prices by $10,900 apiece, according to an April 2025 survey by the National Association of Home Builders (NAHB). Changing interest rates could have an even greater impact on costs for builders and buyers of both single- and multifamily housing. And overall economic uncertainty surrounding the implications of recent policy changes could continue to slow market activity as consumer confidence languishes at near-record lows. Home Price Increases Continue Over the past year, home prices increased modestly for much of the nation. Prices grew by 3.9 percent year over year in February (1.9 percent after adjusting for inflation), according to Center tabulations of the S&P CoreLogic Case-Shiller US National Home Price Index. By contrast, prices increased nationwide by 6.6 percent in February 2024 and 20.2 percent in the same month in 2022. In nominal terms, prices increased for 21 consecutive months after declining briefly in JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING Price-to-Income Ratio Under 3.0 3.0–3.9 4.0–4.9 5.0 and Over US Ratio (Right scale) Notes: Price-to-income ratios are for the 100 largest metro areas by population. Income data for 2024 are based on Moody’s Analytics forecasts. Source: JCHS tabulations of NAR, Metropolitan Median Area Prices; Moody’s Analytics estimates. mid-2023, pushing home prices up 60 percent since 2019 and 127 percent since 2010. The median sales price for an existing single-family home was in 2024, up from 2019, according to NAR. These price increases have been widespread. Home prices rose annually in 88 of the 100 largest metro areas in the first quarter of 2025, according to Center tabu lations of the Freddie Mac House Price Index. Gains were greatest in the Northeast, where prices rose by 6.8 percent on average, followed by the Midwest (5.2 percent), West (2.4 percent), and South (1.8 percent). Recent increases have pushed home prices up since 2019 between 57 percent (in the West) and 68 percent (in the Northeast). Yet some Southern and Western markets saw prices decline last year, mostly in areas where inventories increased substantially, including Cape Coral (down 6.2 percent year over year), North Port (down 4.2 percent), and Austin (down 2.1 percent). Much of the inventory bump is attributable to an increase in the length of time that homes are available for sale. In the first quarter of 2025, the median number of days on market hit 64, according to Realtor.com. This is the highest first-quarter reading since 2020 and far above the 45 days averaged at the beginning of 2022. Months of Supply (Right scale) Existing Homes for Sale in March Notes: Months of supply measures the length of time needed at the present pace to sell all homes currently listed for sale. Six months of supply is typically considered to be a balanced market. Source: JCHS tabulations of NAR, Existing Home Sales. In 2024, existing home sales fell to a 30-year low of 4.06 million, including 3.67 million single-family homes and condo and co-op units. This is a drop of 34 percent from the pandemic-era high of 6.12 million in 2021, and lower than the 5.24 million averaged since 2000. Compared to 2021, sales dropped by 40 percent in the West, 35 percent in the Northeast, 32 percent in the South, and 31 percent in the Midwest. About new single-family homes sold in 2024, up 3 percent on an annual basis. Last year, new homes constituted 16 percent of all single-family home sales, the largest portion since 2005 and higher than the 12 percent averaged annually since 2004. Home sales also grew in response to price cuts and other incentives from homebuilders. According to a May 2025 survey by NAHB, 61 percent of builders offered some kind of sales incentive and 34 percent reduced prices outright. The median sales price of new Single-Family Starts Median Size of Single-Family Starts (Right scale) Source: JCHS tabulations of US Census Bureau, New Residential Construction. Rents Rise Slowly but Vary by Market The increased supply of multifamily units has helped to suppress rent growth. Asking rents in the professionally managed apartment sector rose 0.8 percent year over year in the first quarter of 2025, according to RealPage. While up from the 0.2 percent annual change posted a year ago, rent growth remains down from the same quarter in 2022, when rents rose a record-breaking 15.3 percent year over year. Across property classes, rents increased more for higher-quality apartments as growing numbers of more affluent renters were priced out of homeownership. Asking rents rose 1.8 percent in Class A apartments and 0.9 percent in Class B apart ments year over year. Rents in lower-quality Class C apartments dropped by 0.7 percent. But despite recent slowdowns, average monthly rents have trended up 32 percent since the same quarter in 2019 to $1,830. Meanwhile, rents for single-family homes picked up early in the year. According to Cotality, single-family rents rose by 2.9 percent annually in February 2025, though still down from a peak increase of 14.0 percent in early 2022. The Consumer Price Index (CPI) for rent of primary residence, which is slow to reflect changes in rent levels, decelerated to 4.0 percent annually in April 2025. This is a substantial decline from the 8.8 percent peak in 2023. quence of development. Generally speaking, rent growth slowed or rents declined outright in areas with more apartment completions. Conversely, regions with faster rent growth had fewer new completions. Relative to the same quarter in 2019, strong rent growth pushed asking rents up 41 and 39 percent, respectively, in the Midwest and Northeast; 33 percent in the South; and 26 percent in the West. Vacancies Remain Elevated Amid Strong Demand Last year’s influx of new multifamily supply helped sustain elevated vacancy rates, even amid histor ically strong demand. According to the Census Bureau’s Housing Vacancy Survey, the nationwide rental vacancy rate rose by 0.5 percentage points to 7.1 percent between the first quarters of 2024 and 2025. This reading is consistent with rates averaged in the five years before the pandemic and higher than the 5.6 percent recorded in 2021. While vacancies rose nationwide, they fell in the professionally managed apartment sector, where demand has been especially strong and which frequently houses renters with higher incomes. The number of households living in these apartments rose by annually in the first quarter of 2025, according to RealPage. This is the strongest growth on record excepting 2022 and outpaced even the robust apartment completions. Simultaneously, apartment vacancy rates in this sector declined by 0.9 percentage points annually to 5.0 percent. Even with these declines, vacancy rates remained well above the record low 2.5 percent seen in early 2022. Within the professionally managed sector, vacancy rate declines were geographically widespread at the beginning of the year, ranging from drops of 0.7 percentage points year over year in the Northeast to 1.0 percentage point in the South. But overall vacancy rates remained highest in the South (5.9 percent), where multifamily construction was strongest and rent declines most common, and lowest in the Northeast (3.7 percent), where less new supply has come online. In the West and Midwest, apartment vacancy rates were 4.7 percent and 4.5 percent, respectively. The decline in apartment vacancies extended to most markets. Of the 150 large markets tracked by Real Page, 89 percent recorded a drop in vacancies in the first quarter of 2025, a sharp turnaround from just 10 percent the year prior. Such widespread declines in the vacancy rate are an early indicator that rental markets are beginning to tighten in the face of strong rental demand. Stimulating Supply Remains Important Substantial supply shortages endure despite recent increases in housing construction, owing largely to underbuilding following the Great Recession. Esti mates of the housing shortfall vary from 1.5 million units according to NAHB to Freddie Mac’s 3.7 million. In any case, the underlying message is clear: the US faces a significant housing shortage, especially in the single- family market. The result has been rent growth that strains household budgets and home price apprecia tion that pushes homeownership further out of reach. Persistent underbuilding has also slowed economic growth, reducing gross domestic product (GDP) by trillions of dollars, according to NAR. Residential fixed investment—an indicator of the sector’s economic activity, including new housing production and invest ments in the existing stock—accounted for about 4.1 percent ($1.2 trillion) of GDP in 2024. This is lower than the historical average of 4.8 percent from 1960 to 2007. Producing at this long-run average, the sector would have contributed an additional $200 billion in GDP and started about more housing units just last year. Reducing and removing barriers to new construction would spark substantial economic activity. However, there are numerous obstacles to building more housing. According to a January 2025 NAHB homebuilder survey, 91 percent of builders identified elevated interest rates as an impediment to increased development. Other constraints included rising infla tion (80 percent), buyer affordability expectations (77 percent), and the cost and availability of land (63 percent). Development may also be restricted by regu latory barriers, which can account for up to 41 percent of total multifamily development costs, according to a joint study by the National Multifamily Housing Council (NMHC) and NAHB. Another challenge for residential developers is the shortage of construction workers. For the latest 12-month period ending in February 2025, the industry averaged job openings. Although down from a year earlier, the volume of unfilled positions remains historically high, with just openings averaged before 2020. Reduced immigration could shrink the already-thin labor pool. According to Center tabulations of the ACS, a third of construction workers are foreign-born, about twice the rate of the overall labor force. The rising cost of materials has further complicated efforts to build more housing, and proposed tariffs raise concerns that pressures may increase in 2025. The price of building materials grew by 36 percent between February 2020 and February 2025, according to the Bureau of Labor Statistics.

[Assistant] Tariffs are expected to esca late these costs, considering that roughly 7 percent of construction materials are imported. According to one estimate by John Burns Research and Consulting, the tariffs will likely add $12,800 to $25,500 to the cost of building a new single-family home. Meanwhile, home builders anticipate that such tariffs will push up new home prices by $10,900, as reported in a NAHB survey released in April.


[User] The Outlook Rising home prices, high interest rates, and limited inventories have kept home sales hovering near three-decade lows. While modest increases in single- family homebuilding have given homebuyers more options, ample new supply is needed to alleviate affordability pressures. Moderating interest rates could spur construction and induce sellers to put their homes on the market, increasing opportuni ties for potential buyers. But heightened economic uncertainty and low consumer confidence cloud the path ahead. DEM O G R A PH I C DR I V ER S Household growth has slowed from pandemic-era highs as surges in immigration and household forma tions by younger adults recede. The result is a steep decline in both the primary source of population growth and a major source of household growth. At the same time, domestic mobility has dropped to a historic low. Baby boomers continue to boost the ranks of older adults, transforming household compo sition while ushering in a long-term slowdown in population growth as mortality rates rise. Additionally, the strong economic growth and tight labor markets that supported robust housing demand over the past decade are threatened by rising economic uncertainty. Household Growth Is Retreating In 2024, the number of US households increased by 1.56 million to 131.7 million, according to the Housing Vacancy Survey. Though this rate of growth is histori cally high compared to average levels since the 1990s, it is down slightly from the 1.61 million households in 2023 and far lower than the pandemic-era surge of 1.93 million households averaged annually between 2019 and 2022. :1 Note: Estimates for 2020 and 2021 are omitted due to data collection issues experienced during the pandemic. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. The slowdown is at least partially attributable to the end of an era of unusually accelerated growth among households headed by a younger adult. In a reversal of recent trends, in 2024, the annual increase in the number of households under age 45 slowed to . The outsized level of household growth among younger adults was largely due to an inherently temporary return of “missing” households whose formation was delayed by the Great Recession. These new house holds helped grow both the younger adult headship rate—the share of adults under age 45 who head a household—and household growth by an additional 1.0 million households, or per year between 2019 and 2023. The remaining additional younger adult households per year were due to the increase in the younger adult population. In 2024, however, the rebound in young adult headship rates ended, with formations among younger adults entirely driven by underlying population growth. Drop in Immigration Dampens Population Growth After a three-year surge, immigration plunged in early 2025, slashing an increasingly crucial source of popu lation and household growth as the native birthrate slows. From 2022 to 2024, immigration averaged a massive 2.3 million people per year, up from immigrants annually throughout the previous decade, according to the Population Estimates Program (PEP). Meanwhile, gains from natural changes (births minus deaths) in the resident population averaged just people per year between 2022 and 2024, as compared to an annual average of 1.2 million people from 2011 through 2020. As such, immigration has become the primary source of population growth in both the nation and an increasing number of communities, helping to bolster growth in some areas and stem losses in others. Of these, immigration was the lone source of popula tion growth in 8 states and 557 counties, ranging from larger areas with over 1 million residents, including Palm Beach County, Florida, and Cuyahoga County, Ohio, to smaller ones, such as Bernalillo County, New Mexico, and Albany County, New York. Immigration was also the sole driver of growth in nearly a quarter of counties outside metro areas, most of which are rural.

[Assistant] Meanwhile, natural growth in the resident popula tion is expected to fall further. As the large baby boom generation ages, deaths are projected to rise substantially. Absent any equivalent rise in the number of births, the natural increase in population will slow and then turn negative. The Census Bureau projects Natural Population Change Net Immigration -0.5 3.5 Projected Note: Natural population change is the difference between births and deaths. Source: JCHS tabulations of US Census Bureau, Population Estimates Program and 2023 National Population Projections.


[User] that annual deaths will outnumber births by 2038. From that point forward, the only growth in population would come from immigration. The rate of population growth would then depend on whether immigration levels are sufficient to override native-born losses. New household growth projections from the Center suggest an impending slowdown over the next two decades, primarily driven by the underlying weak ening of population growth. Under the Census Bureau’s main population projection, 8.6 million net new households will form between 2025 and 2035 and another 5.1 million households from 2035 to 2045, assuming that net foreign migration over the next two decades resembles the post-1990 historic average of roughly immigrants annually. If, however, immigra tion levels follow the Census Bureau’s projection that assumes an annual average of people, the forecast changes significantly. In this low-immigration scenario, household growth is projected to total just 6.9 million households in the next decade and a scant 3.2 million from 2035 to 2045. Regardless of age, householders of color are projected to account for over 95 percent of net household growth from 2025–2035 and all of the growth from 2035–2045. At last measure in the 2023 ACS, households of color constituted roughly 37 percent of all households, led by Hispanic households (15 percent), followed by Black households (12 percent), Asian households (5 percent), and all others (5 percent). Notably, shares vary by age. Roughly 44 percent of householders under age 45 were people of color, compared to 38 percent of householders age 45–64 and only 25 percent of householders age 65 and over.

[Assistant] As younger house holders replace older ones, racial and ethnic diversity will increase; the share of households headed by a person of color is projected to grow to 40 percent by 2035 and 44 percent by 2045.


[User] Residential Mobility Is Declining In 2024, household mobility rates were the lowest on record since the 1970s. According to the Current Population Survey (CPS), approximately 8.3 percent of households (10.9 million) reported moving over the past year, unchanged from a year earlier and down from 9.8 percent (12.6 million) before the pandemic in 2019. The overall decline in residential mobility is evident in the recent moderation of interstate migration. In North Carolina, Tennessee, and nine additional states, primarily in the South, migration from other states was the largest source of population growth in 2024 and constituted an average of two-thirds of statewide JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING gains, according to the PEP. But even then, net gains from migration fell in some of these states in 2024, down 17 percent in North Carolina and 20 percent in Tennessee, relative to a year earlier. Economic Uncertainty Constrains Housing Demand The combination of strong economic growth and tight labor markets has supported robust housing demand over the past decade. Despite setbacks during the pandemic, real household incomes rose 12 percent between 2013 and 2023, according to ACS data. Median personal incomes also jumped by an inflation- adjusted 20 percent per the CPS, helping to fuel housing demand. Personal income growth was fastest for young adults, with incomes up 24 percent for those aged 25–34. This trend was particularly beneficial in supporting the rebound over the previous decade in household formations by young adults. Other key metrics of household financial well-being also improved markedly over the past decade. The household poverty rate declined, dropping from 14.3 percent in 2013 to 11.2 percent in 2023, according to the CPS. And aggregate household wealth has almost doubled in the past decade, from $82 trillion in fourth- quarter 2014 to $160 trillion in fourth-quarter 2024, according to the Federal Reserve. However, fully 71 percent of this growth was among the top 20 percent of households by income. The top 1 percent gained more than $18.8 trillion, while the aggregate wealth for the bottom 60 percent grew by $13 trillion, driven by two extended periods of exceedingly tight labor markets. However, as of early 2025, uncertainty is growing regarding the future direction of the economy. The Index of Consumer Sentiment, conducted by the University of Michigan to measure attitudes toward the economy, tumbled in early 2025 over worries about the economic impact of tariffs. Continued and deepening economic uncertainty itself is seen as a leading indicator of economic performance and could undercut housing demand by inspiring people to postpone household formations, residential moves, home purchases, remodeling projects, and similar outlays. Such defer rals would contribute to and be compounded by a slowdown in the housing market and an actual economic downturn. Affordability challenges could further dampen demand by hindering household forma tion, especially among younger adults and people of color, two populations that have fueled demand in recent years. The slowdown in household growth will be felt unevenly around the country, depending on natural population changes and net domestic and international migration. As other sources of population growth contract, domestic migration will become an even more important driver of changes in population and household growth. The substantial increase in the number of older adult households will have important implications not only for household composition but also for the housing stock, which generally lacks the accessibility features required to meet the changing needs of older householders. 04 HO M EO W N E RS H IP The recent surge in homeownership has stalled. The homebuying boom has slowed, and homeownership rates have dropped for the first time in eight years in response to ever-increasing home prices, elevated interest rates, and an extremely limited supply of inventory. Rising insurance premiums and property taxes are pushing up the number of cost-burdened homeowners, especially among those with low incomes, including many older adults. Still, home equity levels remain near record highs, a testament to both the potential wealth benefits of homeownership and the urgent need to ensure widespread access by addressing the affordability crisis. Homeownership Rates Are Faltering The growth of homeowner households slowed sharply in 2024. The past year’s gains were roughly half the 1.25 million added in 2023 and the lowest annual increase since 2016. JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING Homeowner Households Homeownership Rate (Right scale) Note: Estimates for 2020 are omitted due to data collection issues experienced during the pandemic. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. Homebuyer Costs Continue to Rise Homebuyer costs increased again in 2024 as sustained home price appreciation and stubbornly high interest rates pushed homeownership further out of reach for millions of households. Nationwide, the median existing single-family home sales price rose 4.7 percent in 2024 to according to NAR. Meanwhile, interest rates remained elevated, further driving up homebuying costs. The interest rate on the 30-year mortgage began 2024 at 6.6 percent and temporarily dropped to 6.1 percent in September in anticipation of a rate cut by the Federal Reserve. However, by January 2025 the rate had jumped to 7.0 percent as inflation fears persisted. The high costs of homebuying are felt in metro areas across the country. Total monthly payments on the median-priced single-family home grew between the first quarter of 2024 and the first quarter of 2025 in 86 percent of markets covered by NAR. In these metros, the average increase was 6 percent over the past year and 74 percent since the first quarter of 2021. These substantial increases over the past four years have Notes: Closing costs assume a 3.5% downpayment and 3% additional fees. Mortgage payments are based on a 30-year fixed-rate loan. Other costs include 1.15% property taxes, 0.35% property insurance, and 0.55% mortgage insurance fees. Required annual income assumes a 31% debt-to-income ratio. Source: JCHS tabulations of Freddie Mac, Primary Mortgage Market Surveys; NAR, Existing Home Sales. been widespread across all metros, ranging from 39 percent in Peoria, Illinois, to fully 127 percent in New Bern, North Carolina. Buyers can reduce their monthly mortgage payments by providing larger downpayments. But as home prices have risen, so, too, have downpayments, further constricting access to homeownership. Continuing with the lending scenario described in the previous paragraph, a first-time homebuyer would need to provide $26,800 in cash to cover the downpayment and 3 percent closing costs. Roughly 12 percent of renters can meet this requirement, according to the 2022 Survey of Consumer Finances. Should the buyers wish to make a 20 percent downpayment, they would need to provide $95,000 in cash—an amount only 4 percent of renters possessed in 2022. Perhaps it is unsurprising, then, that a quarter of first-time buyers in 2024 reported using a gift or loan from family or friends to afford their downpayment, according to NAR. In this environment, first-time homebuying remained constrained to older, higher-income households in 2024. According to the Urban Institute, the number of first-time homebuyer loans originated in 2024 dropped by 18 percent from the pre-pandemic level of 2019 and 32 percent from the recent peak in 2021. Concurrently, the median age of a first-time homebuyer hit a record- high 38 in 2024, and the median annual household income of first-time buyers was $26,000 higher than it was just two years earlier, according to the NAR 2024 Survey of Buyers and Sellers. According to Freddie Mac, the average annual home owner insurance premium grew by 14 percent ($211) in 2024 alone and by 57 percent ($636) over the past five years, to $1,761 in 2024. That said, coverage costs vary widely by market, with the highest premiums associ ated with the areas most at risk of weather-related disasters. Premium rates range widely, from $2.90 per $1,000 of coverage in Las Vegas to $17.20 per $1,000 in Miami, according to the ICE Mortgage Monitor. For a median-priced Miami home purchased in the first JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING Property tax payments are also up, a consequence of rising home values. Nationwide, average property tax payments increased 12 percent ($455) between 2021 and 2023 to $4,380, with state average increases ranging from 5 percent (Rhode Island) to 37 percent (Wyoming), according to the ACS. Likewise, statewide average annual property tax payments varied widely, from $1,100 (Alabama) to $10,100 (New Jersey) in 2023, with effective tax rates between 0.4 percent (Hawaii) and 2.1 percent (New Jersey) of estimated property values. As with insurance premiums, these increases can strain household budgets. Property Insurance Property Taxes Miami Boston Dallas Oklahoma City Las Vegas United States Note: Costs are based on applying metro area property insurance and tax rates to the metro area median sales price for single-family homes in 2025:1. Source: JCHS tabulations of ICE Mortgage Monitor, March 2025; NAR, Existing Home Sales; US Census Bureau, 2023 American Community Survey 1-Year Estimates. As of 2023, nearly a quarter (24 percent) of all homeowners are cost burdened. That year alone, the number of burdened homeowner households rose by to 20.3 million. This latest annual increase confirms the reversal of a nearly 10-year trend of consistent declines in homeowner cost burdens between 2010 and 2019. The number of burdened homeowners is now up by 3.6 million households since 2019 and the cost-burden rate is 2.5 percentage points higher. The recent growth in owner cost burdens has been widespread across metros, with increases since 2019 in 93 of the 100 largest metro areas. Much of the most significant growth was in areas that have tradition ally been more affordable. Metros such as Milwaukee, Scranton, and Oklahoma City, which had homeowner burden rates under 20 percent in 2019, saw their share of burdened homeowners grow by greater than 5 percentage points between 2019 and 2023, more than twice the national rate during the same period. Still, burden rates generally mirror home prices: highest in the costliest markets, lower in more affordable ones. As of 2023, homeowner cost burdens in Miami, one JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING Burdens are also rising sharply among older households. Between 2019 and 2023, the number of cost-burdened homeowners age 65 and over rose by 1.7 million to 7.9 million households. This increase lifted the cost-burden rate for older adult home owners from 24.2 percent in 2019 to 27.6 percent in 2023. Because older adults are more likely to live in older homes that require more maintenance, those who are cost burdened may not be able to maintain the upkeep, thus jeopardizing their health, safety, and ability to remain in their communities as they age. JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING All Homeowners $75,000 and Over $45,000––44,999 Under $30,000 Household Income Notes: Household incomes are adjusted for inflation using the CPI-U for All Items. Cost-burdened households spend more than 30% of income on housing and utilities. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. Some Owners Have Secured Massive Gains Even as an increasing number of homeowners are cost burdened, many others are growing wealthier. Rising home values have helped millions of homeowners build a significant amount of home equity. In the fourth quarter of 2024, homeowner equity averaged a near-record high of $35 trillion, or roughly per household. Nationwide, aggre gate homeowner equity is now more than double the aggregate mortgage debt level of $13.3 trillion. Many homeowners are also benefiting financially from the historically low interest rates available in 2020 and 2021. In the fourth quarter of 2024, the average market rate for a 30-year fixed-rate mortgage was 6.63 percent. Yet 77 percent of outstanding mortgages during that period carried interest rates of 5 percent or lower, including 45 percent with rates of 3.5 percent or lower, according to the Urban Institute. Although some of these lower-rate loans enabled purchases by borrowers who could not afford a home at higher rates, many more were refinances by homeowners who capitalized on the opportunity to lower their mort gage costs. Indeed, the large volume of refinances drove down the median homeowner housing costs by 2 percent in real terms between 2013 and 2023, better positioning them to manage the recent increases in property taxes and insurance premiums. Equity levels, too, remain highly uneven among home owners, especially by race and ethnicity. According to the 2022 Survey of Consumer Finances, median home equity for white homeowners was fully percent) higher than for Black homeowners, and percent) higher than for Hispanics. JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING Aggregate Home Equity 0 40 Aggregate Mortgage Debt Note: Homeowner equity and mortgage debt are adjusted for inflation using the CPI-U for All Items Less Shelter. Source: JCHS tabulations of Federal Reserve Board, Financial Accounts of the United States. In this environment, delinquencies among financially vulnerable borrowers are inching upward. In 2024, loan performance declined for both Federal Housing Administration (FHA) and Veterans Affairs (VA) loans, mortgage products more heavily used by borrowers with lower incomes and credit scores. According to the Urban Institute, serious delinquency rates on FHA loans rose from 3.5 to 4.4 percent between May and December 2024, while those for VA loans jumped from 2.1 to 2.6 percent during the same period. Both loan portfolios now have serious delinquency rates greater than the FHA’s 3.5 percent and the VA’s 1.9 percent from the fourth quarter of 2019. Meanwhile, the ever-increasing costs of homeowner ship will further strain the millions of homeowners who are already cost burdened, particularly older home owners and those with limited incomes.

[Assistant] Projected growth in the number of older homeowners will likely increase the number who struggle to afford, main tain, and adapt their homes to address their changing needs, including potential accessibility modifications.


[User] 05 REN TA L H O U S I N G As the number of renters facing affordability challenges climbs, cost burdens hit another record high in 2023. Lower-income renters have ever-less money to pay for non-housing essentials. Nevertheless, rental demand remained strong last year, particularly among higher-income households unable to transition to homeownership. Still, the dwindling supply of low-rent units limits more affordable options. Some relief could come from the recent wave of multifamily completions. However, persistent operating challenges and high interest rates are slowing multifamily starts. Consequently, the share of renters with afford ability challenges has increased significantly, up 3.2 percentage points since 2019 and 9.0 percentage points since 2001. Half (50 percent) of renters were burdened in 2023, including 27 percent with severe burdens. This is just shy of the record-high 51 percent of renters who were cost burdened in 2011 in the after math of the Great Recession. As rental unaffordability has worsened, cost burdens have become more prevalent nationwide. Between 2019 and 2023, the share of burdened renters increased in states and in 89 of the nation’s 100 largest metro areas. As a result, more than 50 percent of renters are cost burdened in 13 states and in exactly half of large metro areas. Affordability challenges are most common in Florida and Western states, home to some of the biggest rent increases in recent years. Among the 100 largest metro areas, the 5 markets with the highest renter burden rates are in Florida, including Cape Coral (65 percent) and Miami (63 percent). Burdens are also exceedingly high (57-58 percent) in New Orleans, Riverside, and San Diego. Even in the metros where burden rates are lowest—Des Moines, Pittsburgh, and Wichita—42 percent of renters were cost burdened, as were 39 percent of renters in non-metro areas with significantly lower housing costs, reflecting the scope of the affordability crisis. Renter Cost Burdens Move up the Income Scale Though widespread, affordability challenges remain especially pervasive for renters with lower incomes. As of percent of renters earning under $30,000 are cost burdened, up 1.5 percentage points since 2019 and 5.2 percentage points over the past two decades. Among these households, two-thirds (67 percent) have severe burdens. That said, burdens have risen most dramatically for renters toward the middle of the income scale as housing costs have grown faster than income. Additionally, cost burdens have doubled to 45 percent since 2001 for households earning $45,000 to $74,999. Even many higher-income renters have felt the strain of growing costs. In percent of renters with incomes of $75,000 and over were burdened, up considerably in recent years. Steady employment also increasingly fails to buffer against the increasing costs. Fully 36 percent of renter households headed by someone working full time—at least 35 hours per week for 50 weeks in the prior year—were cost burdened in 2023, up from 25 percent in 2001. Still, affordability challenges disproportionately impact more vulnerable renters, including those with disabili ties, who are less likely to secure full-time work, and older adults, who are more likely to live on a fixed income. In percent of renter households headed by someone with a disability were cost burdened, compared to 47 percent of those without. Likewise, 58 percent of renters age 65 and older were cost burdened, compared to 46 percent of those aged 25–54. Cost burdens are also disproportionately high for renter households headed by a person of color, due at least in part to discriminatory policies and practices in housing, education, and employment. As of percent of Black renter households are burdened, as are 53 percent and 50 percent of Hispanic and multiracial renters, respectively. Burdens are generally less common but still pervasive among Native Amer ican (43 percent), Asian (45 percent), and white (46 percent) renters. JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING Moderately Burdened Severely Burdened All Renter Households $75,000 and Over $45,000––44,999 Under $30,000 Household Income Notes: Household incomes are adjusted for inflation using the CPI-U for All Items. Moderately (severely) cost-burdened households spend more than 30% (more than 50%) of income on housing and utilities. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. Nearly two-thirds (65 percent) of working-age renters cannot cover their non-housing necessities, according to a Center analysis using spending estimates from the Economic Policy Institute. Many households are forced to make tough trade-offs to pay the rent, spending less on healthcare and food or relocating to unsuitable housing or neighborhoods far from transit, employ ment, or social networks. -60 10 Household Income Under –and Over Notes: Household incomes and residual incomes are adjusted for inflation using the CPI-U for All Items. Households that are not required to pay rent are excluded. Data for 2020 are based on 2019 and 2021 values due to data collection issues experienced during the pandemic. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. Rental demand was especially strong in the profes sionally managed apartment sector, where the growth in renters outpaced new construction. According to RealPage, an additional households moved into professionally managed apartments in 2024, triple the that relocated to such units in 2023. This signifies the sector’s biggest year of growth on record dating back to 2000, except the 2021 boom. The number of apartment renters continued to grow substantially through the first quarter of 2025. :Note: Estimates for 2020 and 2021 are omitted due to data collection issues experienced during the pandemic. Source: JCHS tabulations of US Census Bureau, Housing Vacancy Surveys. According to Center tabulations of the latest ACS, the number of renter households earning at least $75,000 increased by 7.8 percent (1.1 million households) in 2023, continuing a longer-term trend briefly inter rupted by the pandemic. These higher-income renters represented a record-breaking 33 percent of all renter households in 2023, up from 26 percent in 2013, after adjusting for inflation. While much of the most recent growth among renter households is among people who traditionally would be transitioning to homeownership, renter household growth has been strongest for older and younger renters over the past five years. Between 2019 and 2023, the number of renter households age 65 and older increased by 8.1 percent as baby boomers continued to age into older adulthood, and those under age 35 increased by 6.4 percent as Gen Z renters entered peak years for forming households. By contrast, the number of renter households aged 35–44 grew much more slowly, by 3.7 percent during the same period, while those aged 45–64 dropped by 2.6 percent. The Higher-Rent Stock Is Growing The number of higher-rent units has increased dramatically in response to the growing population of higher-income renters, the limited rental supply, and the wave of new construction targeting the higher- end market. In 2013, units renting for $1,400 to $1,999 were 14 percent of the stock and those renting for at least $2,000 were 8 percent. Ten years later, these higher-rent units accounted for 24 percent and 20 percent of all units, respectively. During this period, the number of units renting for at least $1,400 after JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING adjusting for inflation more than doubled, including 5.5 million additional units renting for at least Contract Rent Under and Over Notes: Rents are adjusted for inflation using the CPI-U for All Items Less Shelter. Units that are occupied but do not receive payment are excluded. Contract rents exclude utility costs. Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates. To be profitable, most of these units must command steep rents due to the high prices for land, building materials, and labor. According to the Census Bureau’s Survey of Market Absorption, the median asking rent for apartments completed in the fourth quarter of 2024 was $1,900, affordable to a household earning $76,000 annually. Over two-thirds of new apartments (68 percent) had asking rents of at least $1,650, including 41 percent with asking rents above $2,050. Absent subsidies, only higher-income renters can afford to live in these units. metro areas (compared to half of single-family construction), including 39 percent in denser core counties (compared to just 16 percent of single-family construction), according to the NAHB Home Building Geography Index. As investor activity in the single-family rental market increases, observers have voiced concerns that would-be homebuyers are losing the chance to purchase these properties. According to Cotality, investors bought nearly a third of single-family homes sold in the first quarter of percent), much higher than the 19 percent purchased in the same quarter of 2019. Individuals struggle to compete with large investors that can buy homes with cash or more easily secure financing, close deals quickly, and purchase several properties in a single trans action. Such investors target modestly priced homes and have been especially active in growing Sun Belt markets. In response, lawmakers across several states have proposed legislation to prioritize sales to individuals. Operating Challenges Strain Apartment Owners The combination of high interest rates, increasing expenses, and the slowdown in rent growth has created challenges for many apartment owners. For example, operating expenses rose further in 2023, according to the National Apartment Association. Insurance costs remained a substantial driver of the growth, up 26 percent year over year and twice the previous year’s rate. Other cost increases include repairs and maintenance (12 percent), administra According to Cotality, investors bought nearly a third of single-family homes sold in the first quarter of 2025. Nevertheless, operating incomes continued to rise modestly.

[Assistant] According to the National Council of Real Estate Investment Fiduciaries (NCREIF), net oper ating incomes increased 5.5 percent annually in the first quarter of 2025. This is slightly above the pace averaged over the past two years but well below the robust 24.6 percent growth experienced in 2021. Apartment prices declined, though more slowly than in recent years. According to Real Capital Analytics, prices fell 0.9 percent annually in March 2025 after dropping 7.5 percent a year earlier. Falling apartment values also reflect rising capitalization rates as inves tors expect a greater return on equity to compete with growing treasury yields. According to NCREIF, cap rates for apartments rose from 3.7 at the start of 2023 to 4.4 in early 2025. However, they remain below other commercial real estate assets, such as offices and retail, signaling investors’ willingness to accept a lower annual return from the multifamily market because of lower perceived risk.


[User] Against this backdrop, transactions are subdued and loan refinancing is less readily available. Consequently, multifamily mortgage delinquencies increased again. The 30-day delinquency rate on commercial mortgage-backed securities (CMBS) rose year over year in the fourth quarter of 2024, from 4.30 percent in late 2023 to 5.78 percent in late 2024, according to the Mortgage Bankers Associa tion. Because CMBS tend to hold shorter-term loans, they are at greater risk of default in the face of rising interest rates. Still, delinquencies have also risen for mortgages held by the GSEs, though less swiftly, because their loans have longer terms and are thus less susceptible to the recent rate increase. The current environment is also hindering new construction. Among developers experiencing delays in starts in the first quarter of percent cited economic feasibility and 33 percent the availability of construction financing as a cause, according to a NMHC survey. By contrast, these challenges accounted for 18 percent and 7 percent, respectively, of delays in the first quarter of 2022, when interest rates were lower and competition from new development was more limited. 06 HO U SI N G C H A LLENG ES The nation’s housing challenges are growing in urgency. Affordability has continued to erode for renters and homeowners, and a record-high number of people are unhoused. While increasing the housing supply will help to reduce the national shortage, modestly priced homes are especially needed. Affordability and supply problems are exacerbated by the increasing frequency and intensity of disasters. The pullback in federal resources amid rising economic uncertainty will only intensify these challenges and hamper state and local governments’ already-constrained efforts to address housing needs. Preserving Rental Assistance Renters with lower incomes face steep affordability challenges. Because rental assistance is not an enti tlement, millions of income-eligible renter households go unassisted. At last measure in 2021, about 5.1 million renter households earning no more than 50 percent of area median income received some form of rental assistance. That left about 14.2 million, or three out of every four, income-eligible renter households without help. This included a record-high 8.5 million unassisted renter households that were severely cost burdened or lived in severely inadequate housing. Despite current shortfalls, federal resources have not increased enough to cover existing programs, and cuts to funding and staff may be on the horizon. Already, the continuing resolution passed in March that funds the federal government through September did not budget enough to cover renewals for all 2.3 million households that receive Housing Choice Vouchers.

[Assistant] With rents projected to keep rising, the current funding level is expected to result in a net loss of 32,000 vouchers, despite the budget reflecting a slight increase over the previous year. In rural areas, the loss of USDA Section 515 units is an additional concern. The program finances apartments that are home to households. Loans for new developments have not been issued since 2011, existing loans are nearing maturity, and prepayments are removing units from this stock. The Housing Assistance Council (HAC) estimates that about 2,000 units will exit the program each year through 2027, at which point the losses will increase to 16,000 units annually. Absent a substantial preservation effort, HAC estimates that all units will exit the program by 2050.


[User] An unprecedented people were chronically homeless in 2024, nearly double the 2016 low. This count included people who have a disability and who have been homeless for at least a year or have experienced episodic homelessness during the last three years. The number of unhoused people staying in places not intended for human habitation also hit an all-time high of after increasing each year since 2015. Nationwide, there are more than 800 state and local housing trust funds financing affordable housing, as well as more than 350 rental assistance programs.

[Assistant] In 2024, eight localities passed ballot initiatives to levy lodging taxes in support of affordable housing, while three others increased or extended real estate transfer taxes. Additionally, bond issuances can fund affordable housing projects and assistance programs. Last year, voters approved more than $640 million of these bonds. Multifamily private activity bonds can further boost financing for affordable homes and are often used in conjunction with LIHTC allocations. Such bond issuances hit a new record high of $17.9 billion in 2022, according to the Council of Development Finance Agencies. compensation over $1 million and is expected to raise about $50 million annually to support the work of the Seattle Social Housing Developer. And Mont gomery County, Maryland, has empowered its public housing agency to issue $100 million in bonds to seed a revolving construction loan fund that will finance at least 6,000 new mixed-income units. Atlanta and Chicago are following a similar blueprint. Cities are also revisiting land-use policies. The Cambridge city council approved a zoning ordinance that allows four-story multifamily buildings by right in all residential areas. Austin enabled higher-density housing construction by reducing minimum lot sizes for single-family homes and adopting an inclusionary zoning ordinance that grants density bonuses for projects with affordable unit set-asides. Additionally, New York City approved broad upzoning and reduced parking minimums with its City of Yes plan, which is expected to allow for an additional 80,000 homes over 15 years.


[User] One important component of federal resources for disaster recovery is FEMA’s Individuals and House holds Program, which funds hotel or short-term lodging reimbursements and home repairs, among other things, in affected areas. For disasters declared from 2019 to 2024, the program funded more than $14.1 billion in assistance to 5.1 million households. JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY THE STATE OF THE NATION’S HOUSING –2019 Number of Disasters Total Cost (Right scale) 1990–––Note: Costs are adjusted for inflation using the CPI-U for All Items. Source: JCHS tabulations of National Oceanic and Atmospheric Administration, Billion-Dollar Weather and Climate Disasters. The federal spending bill also included $12 billion for disaster recovery through Community Development Block Grant Disaster Recovery (CDBG-DR) funds, which support longer-term rebuilding efforts as well as relo cation and rental assistance. While CDBG-DR funds are crucial for helping communities rebuild, the March continuing resolution did not include additional appro priations for disaster recovery. With most disaster policy focused on recovery after events, more resources are needed to minimize future losses. Nationwide, more than 61 million homes are located in areas with at least moderate hazard risk. FEMA supports a suite of programs that help commu nities increase resilience, reduce the risk of damage to properties, or voluntarily relocate. At $2 billion annu ally, these programs cost much less than recovery efforts and yield greater savings over the long term. Because of rising costs and more limited coverage options, the number of homeowners going without insurance has almost certainly increased from the esti mated 6.1 million households in 2021. Indeed, insurers have declined to renew some policies following major disasters, leaving even more households without coverage. To proactively confront this threat, California issued a one-year moratorium on insurance cancella tions after the Los Angeles wildfires. Overcoming Barriers to Homeownership Rapid home price growth and high interest rates have made it harder for first-time homebuyers to break into the market. One major obstacle to homeowner ship is the downpayment. Inability to afford a down payment is the primary reason renters continue to rent, according to the Federal Reserve’s most recent Economic Well-Being of US Households report. The Urban Institute identified nearly 1,700 downpayment assistance programs nationwide that help lower this hurdle, typically by offering a second mortgage with a loan forgiveness component. But navigating the complex web of programs can be difficult, and demand often exceeds funding. Interest rate subsidies can also bring down the cost of homebuying. In a survey conducted by John Burns Research and Consulting in February 2025, home builders in many markets underscored the impor tance of rate buydowns in closing new home sales to consumers across a spectrum of incomes. The Federal Home Loan Banks also offer lower-rate mortgages for households with modest incomes. In 2024, FHLB Des Moines and FHLBank Boston both launched permanent rate buydown products that reduce interest rates by about 2 percentage points.

[Assistant] The private sector will also need to innovate to deliver more affordable homes more quickly in a changing landscape. The mounting uncertainty around broader economic instability, including the extent and dura tion of tariffs, will likely deter significant investments in off-site construction techniques. Deportations could reduce the already-strained construction labor force. And declining consumer sentiment could slow housing demand.


[User] A year ago, we projected that 2025 would “show continued economic resilience fueled by consumer spending and easing inflation,” while cautioning that “policy-driven headwinds, particularly those related to immigration and tariffs, could drive up inflation and tighten labor market conditions in the following years.” Most economists believed at the time that the “soft landing” would carry into 2025 if inflation continued to ease, and that the Federal Reserve could begin gradually cutting rates. That outlook began to shift as 2025 unfolded. Economic momentum slowed; real GDP growth declined from 2.8% in 2024 to roughly 2.1%, and real consumer spending flattened out. The labor market softened after April, when job growth stalled, unemployment rose to around 4.3%, and employment growth became increasingly concentrated in the healthcare and public services sectors. Meanwhile, manufacturers cut jobs, and construction leveled off. Two policy changes defined the year. First, tariffs: the effective rate of 2% jumped to double digits. Moody’s says that the increase could add about 1.3 percentage points to inflation and subtract about one percentage point from GDP once it is fully passed through. Second, immigration restrictions have made labor force expansion even more difficult. The number of foreign- born workers decreased by more than a percentage point, resulting in an estimated two million fewer workers than a year earlier. These factors raised costs, limited capacity, and lowered the “break-even” job growth rate to about 50,000 per month, meaning even modest hiring shortfalls now lead to higher unemployment. The Federal Reserve initiated a cautious easing cycle, reducing rates by 25 basis points in September and again in October; however, monetary policy was simply slightly less restrictive, rather than fully accommodative. Fed Chair Jerome Powell described the late-year cuts as “risk management moves” and emphasized that future adjustments would proceed cautiously, with rates now near the neutral range (3.75%–4.0%). The Fed also paused balance-sheet runoff, opting instead to replace maturing mortgage-backed securities with Treasury bills — a technical move to maintain liquidity rather than a signal of policy change. Long-term yields hovered between 4% and 4.5%, while wide mortgage spreads continued to weigh on housing. As 2025 winds down, the U.S. economy stands at a crossroads, balancing the benefits of modest monetary easing against the drag from restrictive trade and labor policies.

[Assistant] Growth is expected to hover near its historical trend, though it is shifting toward more investment- and productivity-led gains as consumer momentum eventually fades. Investment trends are becoming increasingly bifurcated, with AI-driven sectors expanding while traditional industries lose momentum. The labor market remains tight but is gradually cooling, and ongoing fiscal and trade uncertainty continues to shape inflation, interest rates, and corporate strategy. While we are not forecasting a recession, it remains a credible risk if policy missteps, renewed supply pressures, or tighter financial conditions disrupt momentum. The year ahead will test the nation’s ability to sustain growth amid elevated borrowing costs, policy uncertainty, and accelerating technological change.


[User] Consumer Spending Will Drive GDP Growth Following the tariff-induced downturn in 2025, GDP is expected to modestly rebound in 2026, primarily fueled by stronger consumer spending. Easing financial market conditions will help lift household outlays, supported by solid growth in real disposable income, a modest savings rate, and a likely pickup in mortgage refinancing. Moreover, retroactive provisions in the One Big Beautiful Bill Act (OBBBA) —eliminating taxes on tips and overtime, restoring state and local tax deductions, and expanding child tax credits — are expected to produce larger- than-usual early-year tax refunds, temporarily boosting consumer spending. Labor Constraints and the “Jobless Expansion” In 2026, the U.S. is likely to experience a “jobless expansion,” with growth persisting despite limited job creation. Immigration restrictions and an aging population are slowing labor-force growth, allowing payroll gains of less than per month to coexist with a stable unemployment rate, but leaving little margin for disruption. Ongoing worker shortages in construction, logistics, healthcare, agriculture, and hospitality will keep wages and operating costs high. Demographic changes, deportations, and the steep new H-1B visa fee will further restrict labor availability, pushing companies to adopt automation and efficiency-enhancing technologies to bridge workforce gaps. Monetary Easing Amid Fiscal Constraint The Fed is expected to cut rates gradually through 2026, aiming for a 3% funds rate by year-end. However, persistent inflation could delay or limit monetary easing, while a sharper slowdown in hiring might prompt more aggressive cuts. At the same time, fiscal deficits and debt exceeding 100% of GDP are likely to continue exerting upward pressure on Treasury yields and long-term rates, even as policy loosens. Markets increasingly alert to deficit risks are reviving a degree of bond vigilance that could influence rate expectations and investor sentiment throughout the year.

[Assistant] Bifurcation of the Economy The U.S. economy continues to resemble the pronounced diverging lines of a K-shaped pattern, a trend that has deepened since the pandemic and is expected to persist into 2026. The divide between higher- and lower-income households remains evident, with affluent consumers benefiting disproportionately from the One Big Beautiful Bill Act, alongside wealth gains from strong equity markets and appreciating home values. Meanwhile, lower-income households continue to face higher living costs, limited savings, and a cooling job market. This widening economic divide will continue to shape overall consumer behavior and spending patterns in 2026.


[User] Policy Shifts Reshaping Inflation Trajectory Headline inflation is expected to ease modestly through 2026, though sticky core services prices are likely to keep inflation well above the Fed’s 2% target. The “last mile” of disinflation will be the most challenging, especially if tariffs or wage pressures reemerge midyear. Any escalation or expansion of tariffs could trigger further global retaliation, disrupt supply chains, and weigh on key investment sectors such as manufacturing and technology that rely on international trade and imported components.

[Assistant] U.S. Commercial Real Estate Market 02 U.S. Commercial Real Estate Market After several years of uncertainty, 2026 could mark a turning point for the U.S. commercial real estate sector. A broad rebalancing of fundamentals is underway as financing conditions stabilize, occupier demand strengthens, and confidence returns. Leasing and sales are gaining momentum as capital re-engages and pricing expectations move closer to equilibrium. With investors and lenders adapting to a more disciplined yet steady environment, the industry can enter the year with renewed energy and a clearer path toward growth.


[User] The office sector is nearing its bottom as employers and employees settle into more balanced work-life routines. Vacancy rates are approaching their cyclical peak, signaling stabilization on the horizon. In contrast, the industrial and multifamily markets are both moving toward equilibrium as new construction moderates and demand realigns with sustainable growth.

[Assistant] Developers in both are showing greater discipline, and absorption is once again aligning with long-term fundamentals, helping restore balance after several years of volatility. Retail continues to be resilient because of selective expansion, experiential formats, and the strength of well-capitalized tenants. Disciplined growth and limited new supply have made retail one of the most stable performers in commercial real estate. Long-term changes underway in certain sectors of the economy are directly affecting real estate planning. For example, momentum in the digital economy remains strong, but exceptional growth in data centers fueled by AI and cloud computing is spurring mounting challenges in power, water, and zoning availability, creating new pressures. While policy uncertainty, persistent inflation, and labor constraints will continue to influence decisions, the commercial real estate sector appears to be entering 2026 with greater clarity and growing confidence. Inflation is likely to remain above the Federal Reserve’s long-term target, and workforce challenges such as skilled labor shortages and tighter immigration policies will continue to test growth and efficiency. Higher for Longer Despite the Fed’s pivot toward easing, long-term rates remain stubbornly high. Five cuts since late 2024 have barely dented borrowing costs, as fiscal concerns and heavy Treasury issuance keep yields anchored. With the 10-year Treasury projected to stay above 4%, elevated financing costs will continue to test deal feasibility and reinforce disciplined underwriting. Prolonged Decision Paralysis Policy uncertainty may remain a defining feature of 2026. Tariffs, immigration reform, and an evolving monetary landscape may cause corporate leaders and investors alike to continue delays in strategic planning, capital deployment, and expansion. For the real estate sector, uncertainty may lead to extended transaction timelines, more conservative underwriting standards, and restrained development. Many firms will favor flexibility and optionality over long- term commitments, slowing deal flow and muting investment until greater policy clarity emerges. Artificial Intelligence Acceleration Artificial intelligence will continue to be one of the most powerful transformative forces shaping business strategy and investment decisions in 2026. Adoption is shifting rapidly from pilot projects to enterprise-scale integration as organizations chase efficiency, cost savings, and competitive advantage. Across industries, AI adoption will progress unevenly, widening the gap in productivity, profitability, and wage growth between technology leaders and sectors slower to adopt innovative technologies. Secondary and Tertiary Market Momentum People and capital are expected to continue migrating to high-growth secondary metros in 2026. Markets such as Phoenix, Nashville, Raleigh-Durham, and Columbus continue to benefit from strong population inflows, relative affordability, and business-friendly policies that attract both employers and investors. Meanwhile, emerging tertiary markets like Boise, Greenville-Spartanburg, and Reno are attracting institutional capital seeking higher yields and long-term growth potential beyond traditional gateway cities. Cap Rate Segmentation Will Widen The Fed has eased rates, and capital is readily available. The past cycle has driven market-level cap rates for industrial and multifamily properties closer together. Investors will focus on risk-adjusted returns and inherent underlying local dynamics, resulting in a widening of cap rate spreads between markets. Reemergence of Cross-Border Capital International investment in U.S. real estate has run at record lows as a share of total volume. Private capital has been the dominant source, but this will begin to change in 2026. Reset pricing will appeal to international buyers, opening opportunities for portfolio acquisitions and trophy office assets. Pricing Across most asset classes and quality levels, pricing has found a floor, and values are rising again. Gains will continue in 2026, though with borrowing costs and cap rate spreads remaining tight, don’t expect a value pop. Low- to mid-single-digit gains are expected for most asset classes. Office Regaining Traction Office has led all asset classes with volume and price growth in 2025, and selective larger deals are occurring. These trends may repeat in 2026 if improved fundamentals, compelling pricing, and renewed interest from institutional and cross-border capital continue. Hospitality in the Workplace The influence of hospitality on office design is not only evolving but will accelerate into 2026. To foster both productivity and collaboration, there is a sustained shift toward spaces that blend residential warmth with workplace functionality. Tenants increasingly want the comfort and flexibility of a home office, using natural lighting, abundant greenery, and adaptable furniture configurations. As this trend gains momentum, offices in 2026 will likely feel even more inviting, personalized, and conducive to employee well-being. New Owners Bringing New Opportunities As loan maturities and refinancing pressures mount, sales to new owners are reshaping the office market. Many owners have chosen to return properties to lenders or sell them at deep discounts, while allowing well-capitalized investors to reposition assets. Investing in upgrades, hospitality-focused amenities, and launching rebranding strategies, new owners are transforming underperforming buildings into lively, mixed-use environments. In 2026, this reinvestment trend is expected to revitalize these office properties as new ownership has funds to finance new lease transactions. Rethinking the Corporate Campus Hybrid work continues to redefine corporate real estate strategy, pushing companies to reimagine large, traditional campuses by consolidating space and creating adaptable, tech-enabled environments for flexibility and sustainability. Open layouts, collaborative zones, and energy-efficient systems are replacing static office models, aligning space with culture and ESG goals. In 2026, workplaces will begin to serve as engagement tools — designed to attract talent, inspire innovation, and reflect a company’s values. This evolution, however, will bring excess space to the market, inviting creative redevelopment and new adaptive reuse opportunities. “Leasing momentum and fundamentals are continuing to tighten and pushing the outlook for the U.S. office recovery. Activity is at post-pandemic highs and is expected to accelerate through 2026 as tenants capitalize on expiring leases and limited new supply.” Matt Gannon Executive Managing Director & Market Leader |Washington, D.C. Region, Head of Agency Leasing | U.S.


[User] Vacancy The U.S. office vacancy rate is projected to fall 30 basis points, to below 18%, by the end of 2026, driven by rising demand in key markets. The constrained construction pipeline is contributing to more leasing in existing properties, helping to lower vacancy rates in well-located buildings. Some vacant and obsolete properties will be gradually removed from inventory for conversion to alternative uses. Lease Rates Asking rents stabilized at the end of 2025, as many markets adjusted pricing.

[Assistant] In 2026, a modest 1%–2% increase in asking rents is anticipated, driven by tightening vacancy rates, limited new construction, and reduced availability in the top-tier segment. Concession packages now at record levels could gradually decline as markets approach balance.


[User] Demand Leasing increased in 2024 and 2025 to the highest levels post-pandemic in most U.S. markets. More than 12M SF was absorbed in the first nine months of 2025.

[Assistant] This is expected to continue into 2026 as tenants begin occupying leased space and more transactions occur. Many companies are actively seeking better agreements in the near term, with recovery progressing in various markets. Construction The construction pipeline was down to 31M SF as of the end of 2025, deterred by high material, labor, and financing costs in 2024 and 2025. However, new development is expected to pick up in 2026, with deliveries completing in 2028, as large tenants face limited options while developers pursue selective speculative projects amid rising demand. The U.S. Industrial Market is Approaching Its Next Growth Cycle Despite broader uncertainty, industrial user demand and new supply are becoming increasingly aligned, though at varying speeds across markets. Industrial space under construction has fallen 62%, almost at its bottom before the next development wave begins. A more balanced industrial market lies ahead, supported by pent-up demand and strong fundamentals which point to steady, sustainable growth. Industrial Occupiers are Shifting As in recent years, third-party logistics, trucking, and transportation firms are expected to comprise roughly one-third of new bulk occupancies in 2026, with Asia- based 3PLs continuing to gain share. Manufacturing, data center, tech, and R&D users are also projected to expand, while e-commerce is expected to remain subdued, having declined to below 3% of new bulk occupancies in 2025. Reshoring and CHIPS Act initiatives have pushed manufacturing construction spending nearly 200% higher since 2020, though growth could level off in 2026. In contrast, data center construction spending is forecast to continue its rapid ascent, up nearly 400% since 2020. Global Supply Chains are Being Restructured Industrial occupiers will continue to reshape global supply chains in 2026 because of geopolitical, labor, technological, sustainability, and operational pressures. Companies are diversifying sourcing strategies and relocating production closer to end markets to reduce dependence on any single region. U.S. imports from Mexico surpassed those from China in 2023, as Mexican labor costs fell below China’s. At the same time, Latin America and lower-cost Asian nations are emerging as key manufacturing hubs amid persistent U.S.–China trade tensions and a fragmented semiconductor supply chain. Innovation is Accelerating but Constrained by Infrastructure Limits Warehouse automation and AI are expanding rapidly across supply chains, but growth is limited by power and data infrastructure. Data center demand is expected to rise by 10%–12% annually, but faces mounting challenges from power, land, cooling, and connectivity constraints. In many major markets, limited grid capacity has become the top obstacle to the next wave of industrial and digital innovation.


[User] “The U.S. industrial market is nearing an inflection point as construction bottoms out and demand strengthens, setting the stage for the next phase of renewed expansion.” Stephanie Rodriguez National Director, Industrial Services U.S. NATIONAL INDUSTRIAL FORECAST Vacancy Industrial vacancy has been rising in the U.S. for the past three years and could peak near 7.6% in early 2026 as demand strengthens and new supply remains limited. Over the past year, vacancy rates have decreased in 14 markets, six in the Midwest and five in the South. Even in markets where vacancy rates top 10%, increases have slowed and are nearing a cyclical peak. Excess new supply in these markets, however, will delay a return to historical vacancy levels. Demand After a slow 2024, net absorption remained sluggish in the first half of 2025 before surging in Q3 to its highest level since early 2023.

[Assistant] Stronger leasing in all building sizes signals rising demand heading into 2026, with net absorption expected to exceed 220M SF, 37% higher than 2025 projections. Combined with high proposal volumes, industrial users are showing renewed confidence, revisiting supply chain strategies, and moving forward on leasing. Construction Since peaking at 711M SF in 2022, space under construction has fallen 63%, to 270M SF, the lowest level since 2018. Build-to-suit projects are increasing, but speculative construction will remain more measured until vacancy recovers and the gap between replacement- cost rents and market rents narrows. Stabilizing demand fundamentals will usher in the next wave of development.


[User] Lease Rates Rent growth has slowed sharply from the double-digit gains of 2021–2023. Warehouse and distribution rents increased only 2% over the past year and have retreated in several markets that had the steepest increases, falling from their highs a couple of years ago.

[Assistant] In 2026, rent growth is expected to remain modest, at 1%–4%, unless strong local conditions prevail. Oversupplied markets may have even slower growth as tenants gain leverage. The Great Space Squeeze Higher construction and financing costs, plus rising cap rates and tariffs, continue to suppress retail development. With costs outpacing achievable rents, most new projects are limited to pre-leased pads or mixed-use ground-floor spaces. As speculative activity stalls, the supply-constrained pipeline is expected to sustain long-term performance despite uneven near-term demand. AI Gets Accountable Retailers will continue to invest in AI to boost efficiency and future-proof operations, but expectations are shifting from innovation alone to measurable impact. Retailers will prioritize AI that clearly enhances productivity, reduces costs, and delivers tangible returns.


[User] Vacancy Vacancies are forecast to remain unchanged through 2026 because of the balance between limited new supply and steady tenant demand.

[Assistant] Smaller formats, freestanding stores, and in-line spaces are expected to drive most leasing. At the same time, renewed interest in larger footprints signals selective expansion by retailers seeking prime locations in a still supply-constrained market. Lease Rates Market rents are projected to rise by approximately 1.5% in 2026 as space availability remains steady and retail sales growth moderates. Southern and Western metros, such as Austin, Dallas, and Orlando, are expected to outperform, with gains of 3%–5%. In contrast, rents are expected to lag behind in legacy and supply-heavy markets in the Northeast and Midwest.


[User] Demand Retail demand is projected to remain positive through 2026, supported by healthy leasing velocity and limited new supply. The median time to lease has reached a historical low of under seven months, with prime spaces filling in less than five.

[Assistant] While some malls and shopping centers may have periods of negative absorption, steady demand for general retail is expected to keep overall net absorption positive. Sales Volume Leader, Yet Again Multifamily has led investment sales volume since 2015, and there are no signs of this changing. However, its share of total volume is expected to ease somewhat as investors allocate more capital to office, data centers, and retail. Distress Plays Increase CMBS delinquency has increased over the year, signaling emerging stress. Anecdotal feedback suggests that special servicers remain busy and anticipate more assets coming to market. Transitional assets and those underwritten at the top of the market are facing refinancing challenges. More of these deals are expected to come to light over the next year. U.S. NATIONAL MULTIFAMILY FORECAST Occupancy Fundamentals have held up remarkably well given the multi-decade-high level of development across markets. Several metros still face sizable pipelines, but that pressure is easing quickly. As long as the job market remains stable, occupancies are expected to improve in 2026, setting the stage for stronger performance in 2027 and 2028. Lease Rates A midyear slowdown briefly softened rental momentum, though the effect is expected to be temporary. With improving fundamentals, rent growth in 2026 is expected to exceed that of 2025, and in a greater number of markets. Demand Absorption is anticipated to ease from recent highs. Strong support for rental demand includes rent-to-income ratios, elevated home prices, a less certain job market, and attractive concessions. Construction Few projects are moving forward today, allowing the market time to recalibrate. Starts are likely to bottom out in 2026, before fundamentals drive the need for more product in 2027 and beyond. Historically slower-growing markets in the Midwest are among the leaders for rent growth, attracting investor attention. Meanwhile, strong demographic markets are expected to rebalance in short order, keeping a focus on the Sun Belt.” David Goodhue Head of Multifamily Capital Markets | U.S., Executive Managing Director | Boston 23 No Signs of a Slowdown With nearly every quarterly earnings report, tech companies report that demand is outpacing available capacity, driving higher capital expenditures. Billions of dollars are being invested throughout the value chain, and this trend is expected to continue in 2026. NIMBY Gains Traction Friction is building as communities push back on data center development. A few projects have already been abandoned, and more are expected to be shelved in 2026. Power Breakthrough The scale of proposed data center expansion is unprecedented. Collaboration between local, state, and federal governments to expedite power capacity, along with direct power investment, has made headlines. Further advancements in technology and supportive legislation are expected to unlock new opportunities in 2026. U.S. NATIONAL DATA CENTER FORECAST Vacancy Vacancies are anticipated to remain at, or near, all- time lows in 2026. Preleasing is strong, although spec development is expected to put upward pressure on the market. However, vacancies are likely to remain at historically low levels. Decentralization of Care and the Impact on Rural Health Hospital systems and healthcare providers are expected to further accelerate the construction of facilities closer to patient populations in 2026. The expansion of medical office buildings (MOBs), urgent care centers, stand- alone emergency departments, ambulatory surgery centers, and other off-campus facilities will continue to drive community-based convenience and accessibility. This trend underscores a strategic movement toward decentralized healthcare delivery, with timely local services reducing reliance on traditional hospital campuses. This will have a significant impact on rural healthcare, as nearly 14% of rural hospitals are at risk of closure in 2026.


[User] Increased Investor Demand MOBs remain one of the most sought-after assets in healthcare, combining stable occupancy with reliable long- term income. Average occupancy reached 92.5% in 2025, with several markets surpassing 95%, driven by strong demand from hospitals and physicians. Investor demand is supported by aging demographics; the population aged 65 and above is projected to grow from 61 million in 2024 to 70 million by 2030, driving healthcare spending toward $2 trillion.

[Assistant] With limited new supply and rents rising nearly 2% year-over-year, MOB fundamentals remain exceptionally strong, ensuring continued investor momentum throughout 2026. Increasing Role of Technology The integration of AI-assisted diagnostics, intelligent lighting, and climate control systems is significantly improving both design and operational efficiency and the patient experience. A growing number of healthcare systems are incorporating AI technology into back-office operations to boost efficiency as they offset the workforce shortages. In the coming years, AI is expected to continue advancing in patient care by analyzing lab and imaging results, streamlining communication between providers and patients, and powering surgical robots.


[User] U.S. NATIONAL HEALTHCARE FORECAST Vacancy The U.S. vacancy rate for MOBs remains below 8% and is expected to stay steady in 2026. An aging population is accelerating demand for care, prompting many providers and practices to expand operations.

[Assistant] Lease Rates Rent growth, which has averaged 0.8% per quarter since the start of 2022, is anticipated to persist due to sustained high demand and limited new supply. The difference between new construction and existing inventory, around $10/SF in most markets, is expected to remain significant in the short term; however, it will begin to narrow as availability diminishes. Demand Health systems and provider practices are consistently leasing space, and this trend should continue in 2026. Although there may be adjustments at the submarket level as they transition towards residential areas, the overall leasing volume is anticipated to remain robust. “Healthcare continues to be resilient. Providers are driving growth in the outpatient arena, delivering higher-acuity services and meeting patients’ desires for convenience. Investors recognize the strength of healthcare fundamentals and seek to deploy capital into the sector.” Shawn Janus National Director, Healthcare Services 29 Onshoring Momentum Continues In 2025, billions in domestic investments were announced by firms such as AstraZeneca, Eli Lilly, Johnson & Johnson, and Biogen. This onshoring momentum is expected to continue in 2026 because of strategic, economic, and policy factors, including rising global tariffs, supply chain vulnerabilities exposed by the COVID-19 pandemic, national security concerns, and evolving federal incentives and regulations.


[User] Favorable Leasing Conditions for Tenants In many of the major life science hubs, tenants seeking space will be well positioned to do so. Double-digit vacancy rates are common in many cities due to an overhang of speculative supply and a decline in demand. As a result, many landlords are competing for tenants, giving potential tenants greater leverage. Vacancy A vacancy recovery could gain steam in 2026. At the end of 2024, the Major Market Aggregate vacancy rate neared 19%. More deliveries in 2025 placed upward pressure on vacancies nationwide; however, most of the construction wave has passed, and new product will not have the same impact moving forward.

[Assistant] If absorption can regain its footing, more landlords could begin increasing occupancy. “Despite historically high vacancy rates driven by newly delivered lab space and sublease availability, the fundamentals for Life Sciences real estate are improving. Slowed new deliveries, accelerating scientific innovation, growing utilization of AI, increased VC and M&A investment, and tariff-driven onshoring are contributing to an improved outlook for the sector in 2026.” Joe Fetterman Executive Vice President | National Life Sciences Steering Committee 32


[User] Upper Upscale & Luxury Property Segments Outperform High-income earners — households earning the top 10% of incomes — will drive demand for hotel rooms in 2026.

[Assistant] Since these travelers are affluent, revenue for Upper Upscale and Luxury properties is expected to outperform that of more economical brands. Inflation has hit lower-income households the hardest, with the price of goods higher relative to their wages. Travelers with lower incomes are moving away from global destinations and toward domestic value destinations, which will help occupancy at economy and midscale hotels.


[User] Generative AI Will Change How Hotels Are Booked When online travel agencies (OTAs) emerged, that changed how consumers selected lodging, and by extension, how hotels allocated their advertising. Widespread access to generative artificial intelligence (AI) has started a new revolution; the use of AI tools for travel planning almost doubled from 2024 to 2025, increasing from 10% to 18%, according to Oxford Economics, led by Millennials and Generation Z. As consumers increasingly use AI for trip planning, AI-integrated platforms and hospitality marketers have a growing opportunity to capture market share. Demand Green Street expects 1.3% quarterly growth in demand next year, likely driven by Upper Upscale and Luxury properties, although it could come at some cost to Average Daily Rate (ADR), as hotel operators moderate pricing to attract value-conscious travelers. Oxford Economics warns that hotels in markets heavily reliant on international travelers, such as New York, San Francisco, Los Angeles, and Miami, will have higher vacancy rates next year due to negative sentiment about tariff policies and political uncertainty. Net Operating Income (NOI) Hotel properties are likely to see declining NOI growth next year, from -3.6% in Q1 to -1.2% in Q4, according to Green Street.

[Assistant] This trend is expected to temper investment pricing if capitalization rates remain steady. Continued stabilization in the rate environment, combined with greater economic clarity, could help rebuild investor confidence and encourage more active capital deployment in strategic markets.


[User] Average Daily Rate ADR growth was largely flat in 2025 as hotel operators faced more competition for increasingly price-sensitive travelers, which could continue into 2026. According to Oxford Economics, 90% of consumers cited “value for money” as their primary travel decision factor in 2025, rising from 83% in 2024 and underscoring sustained demand for midscale and economy brands, packaged offerings, and loyalty-based pricing strategies.

[Assistant] “Hotel performance in 2026 will hinge on luxury and value-conscious consumer behavior. The industry will have to navigate softer foreign tourism, and embrace AI-driven bookings—where resilience lies not in chasing yesterday’s search habits, but in adapting to tomorrow’s preferences. Rising investor appetite and debt capital availability may compress cap rates, cushioning valuation declines in cashflow constrained assets.” Mark Owens Vice Chair, Hospitality Practice Group Leader 35


[User] 01 EX ECU TI V E S U M MAR Y Across the US, persistent affordability challenges and rising economic uncertainty are hurting housing markets. Weakening labor markets and plummeting immigration have dampened household growth and mobility. Sales of existing homes sit at three-decade lows and inventories are rising in the face of high homebuying costs. In the multifamily segment, rents fell, demand slipped, and vacancies rose. Although markets are struggling to absorb a wave of new deliveries, cost burdens have hit another record high for renters and worsened for homeowners, and assistance remains profoundly underfunded. In response to federal retrenchment on numerous housing policies, states and localities are seeking new tools to bring down costs and protect their most vulnerable residents. Drivers of Housing Demand Are Weakening Household growth, a key driver of housing demand, slowed for the third consecutive year in 2025. After surging to an annual average of 2.0 million house holds in 2020 and 2021, household growth was just 1.1 million in 2025, consistent with the more modest levels averaged across the 2010s. In 2025, the US added jobs. This is the smallest amount in a non-recession year since 2002, according to the Bureau of Labor Statistics (BLS), and contributes to an increasingly stagnant, “low-hire, low-fire” economy. At the same time, student debt obligations have Source: University of Michigan, Surveys of Consumers. returned in force since the pandemic-era pause on federal student loan payments was lifted. The share of student loan debt that is at least 90 days overdue jumped from less than 1 percent in the fourth quarter of 2024 to 10 percent at the end of 2025, according to the New York Federal Reserve. Many young adults cannot afford to form new households, instead doubling up or living with family. Other young adults may be reluctant to form households due to uncertainty. Confidence in the financial prospects of both households and the broader economy was near a record low in 2025, according to the University of Michigan’s Consumer Sentiment Index, and has declined further this year amid worsening expectations of inflation with the onset of the conflict in Iran. Uncertainty and slowing job markets also affect resi dential mobility, another driver of housing demand that is also falling. The share of households that relo cated dropped to a record low of 11.2 percent in 2024, according to the American Community Survey (ACS). Net international migration halved in 2025. The Census Bureau projects that it will plummet another 75 percent in 2026 to just people, roughly a third of the averaged annually from 2001 to 2019.

[Assistant] The impact of plunging immigration on household growth will likely be substantial and increasingly evident over time, further slowing population growth and damp ening household formation.