Apartment Outlook Weathers Economic Crosswinds
An energy price shock made the second quarter of 2026 a bumpy one. Disruptions to global oil supplies this spring sent energy prices sharply higher, undoing much of the recent progress on inflation. The broader economy, however, absorbed the blow better than many feared. First quarter GDP growth was revised up to 2.1% annualized from an earlier estimate of 1.6%, although the Atlanta Fed's GDPNow model puts second quarter growth closer to 1.4%.
Hiring, meanwhile, ran hot and cold. What initially looked like a solid spring faded once revisions cut April and May gains to 148,000 and 129,000 jobs, and June managed only 57,000, the smallest monthly gain since February. In total, employers added about 334,000 jobs during the quarter. The unemployment rate slipped to 4.2% in June, but the decline owed more to people exiting the labor force than to new hiring, as participation fell to 61.5%, a level last seen in early 2021. Wage gains stayed intact, with average hourly earnings up 3.5% from a year ago.
Inflation, on the other hand, was hard to ignore. Headline PCE climbed to 4.1% year-over-year in May, a third consecutive monthly acceleration and the highest mark in over three years, with energy responsible for most of the increase. Core PCE, which strips out food and energy, ran cooler at 3.4%. Under its new chair, the Fed left the Fed Funds Rate unchanged at 3.50%-3.75% in June, though the mood has clearly shifted. A rate cut this year is no longer the base case, and about half of policymakers now lean toward at least one hike before the year is out. The pressure could prove temporary, however. Oil has fallen more than 35% from its recent high as tensions cooled, and May may well mark the peak for headline inflation.
That mix of soft hiring and sticky inflation shapes our latest apartment outlook. Nationally, effective rents are forecast to grow about 1.9% between 3rd quarter 2026 and 2nd quarter 2027. San Francisco (3.8%), Milwaukee (3.5%) and Miami (3.4%) are the only markets projected to reach the 3% range. More than half of the top 50, some 56%, sit between 2.0% and 2.9%, a group spanning coastal markets like San Diego and Los Angeles and Midwest performers like Cincinnati and Chicago. Another 26% should land in the 1% range, including New York, Seattle, Washington, DC, and Phoenix. Austin, Tampa, Denver and Fort Worth should grow below 1%, while Houston and San Antonio see slight declines as they work through recent supply.
New construction keeps winding down. We project roughly 312,000 deliveries nationwide over the coming four quarters, about 84% of which will land in the top 50 markets. Dallas tops the list at nearly 19,000 units, with New York and Newark each above 16,000 and Phoenix and Houston close behind. Deliveries will be scarce in Memphis, Virginia Beach, Oakland, Cleveland, and San Francisco, and that scarcity helps explain why San Francisco leads our rent growth outlook.
