3rd Quarter Forecast Impacted by FOMC's Recent Rate Cut and Economic Insecurity

The political uncertainty that dominated the first three quarters of the year culminated on the last day of 3rd quarter with a long-feared outcome: a government shutdown. A prolonged shutdown could significantly impact the broader economy moving forward.

However, 2nd quarter delivered a surprisingly strong upside, with the U.S. economy growing at an annualized rate of 3.8%, the fastest pace since 3rd quarter 2023. Growth was driven by a sharp drop in imports and steady consumer spending.

Despite strong economic growth in 2nd quarter and a positive outlook, the labor market failed to keep pace in 3rd quarter. Employers faced headwinds from tariffs and political uncertainty, which slowed hiring. In July and August (excluding September due to the government shutdown) the economy added just 101,000 jobs, well below last year’s pace. This continues the trend of weaker employment growth seen earlier in the year, with gains nearly 50% lower than the first half of last year. Over the past four quarters, job creation has totaled less than 1.5 million, significantly underperforming compared to the prior year.

Concerns about tariffs have so far translated into only a modest impact on inflation through 3rd quarter. The Fed’s preferred gauge, the Personal Consumption Expenditures Price Index (PCE), posted small monthly increases since June. Year-over-year, PCE grew 2.7% as of August, which was slightly above last year’s level and about 50 basis points higher than the April low. While inflation remains above the Fed’s 2% target, signs of labor market weakness prompted the Federal Open Market Committee (FOMC) to cut the Fed Funds Rate by 25 basis points to a range of 4% to 4.25%, with guidance suggesting at least one more cut before year-end.

These developments have shaped our latest forecasts. Nationally, we expect effective asking rent growth of less than 2% during the year-ending 3rd quarter 2026. Among the top 50 markets, roughly 18% are projected to grow rents in the 3% to 3.9% range, with Miami leading at nearly 4% annual rent growth. Half of the largest markets will see growth in the 2% to 2.9% range, while roughly 15% will be in the 1% to 1.9% range. At the other end of the spectrum, five markets are expected to post rent cuts over the next 12 months, with Denver facing the steepest decline at more than 3%.

The slowdown in new deliveries is expected to persist well into 2026. Over the next four quarters, more than 323,000 units are projected to come online nationwide, with the top 50 markets accounting for roughly 88% of that total. Phoenix, New York and Newark will each gain over 19,000 new units, while Dallas and Los Angeles round out the top five with approximately 18,000 and 14,000 new units, respectively.

For more economic insights that influence the multifamily industry, follow our Economy Express series.