release edition [058]

read time [8 minutes]

Welcome to The Multifamily Download, a weekly newsletter where I provide institutional insights to help you build an exceptional Multifamily career.

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Today at a Glance:

• Inflation: CPI & The Tariff Paradox
• Distress: The Tides Are Shifting
• Leasing: Supply & Demand Slowing
• Weekly Listen: Walker Webcast

Inflation

On the heels of yesterday's SCOTUS ruling about Tariffs, let's start with the question everyone should be asking:

If average tariff rates on U.S. imports more than quintupled in 2025, from 2.6% to 13%, why is inflation actually falling?

Last week, the Bureau of Labor Statistics reported that headline CPI came in at 2.4% year-over-year in January. That is down from 2.7% in December, below the 2.5% consensus expectation, and the lowest reading since May 2025.

Core CPI, stripping out food and energy, came in at 2.5%, also a multi-year low.

The softer print is encouraging on its own. But the context surrounding it is what I find interesting.

The week before the CPI report dropped, the Federal Reserve Bank of New York published a study concluding that nearly 90% of the economic burden from last year's tariffs was borne by U.S. firms and consumers, not foreign exporters.

Average tariff rates quintupled and inflation still moved lower.

I am (still) not an economist, but there are a few possible explanations worth considering as the tariff saga continues to unfold.

First, the K-Economy continues to shape the aggregate numbers. The top 20% of earners are spending relatively freely and are largely insulated from tariff-driven price increases on goods. The bottom 50%, however, are pulling back on discretionary spending. The contraction in lower-income consumer activity puts meaningful deflationary pressure on certain categories, even as costs rise elsewhere.

Second, energy prices fell meaningfully. Gasoline dropped roughly 7.5% year-over-year in January. That is a significant drag on the headline figure and offsets a lot of upward pressure from tariffed goods categories.

Third, and this one is worth watching, corporate margins appear to have served as a buffer as shown on the charts in this Wolf Street article. Rather than passing every tariff dollar through to consumers, many companies absorbed costs to protect market share. Wile this is a disinflationary force in the near term, it is also not a permanent solution, and may be worth monitoring as we move through 2026.

The Fed decided to hold the federal funds rate steady at 3.50% to 3.75%, with a 92% market-implied probability of no change at the March meeting. Rate cuts are not expected until at least June by most projections.

For those of us in Multifamily, shelter CPI is the number to follow closely.

In January, it rose just 0.2% month-over-month, bringing the annual increase down to 3.0%, the lowest in years.

Shelter accounts for more than one-third of the CPI calculation. As Multifamily supply continues to drag on rent growth through 2026, moderating shelter costs will likely continue to drag headline inflation lower, even if other categories tick up modestly.

The February CPI print is scheduled for March 11. If this lower inflation trend holds then market expectations for mid-year rate cuts will strengthen.

Summary

January CPI came in at 2.4%, below expectations and a multi-year low. Despite tariffs jumping to an average 13% rate in 2025, inflation is cooling rapidly. Softening shelter costs and weakening consumer demand in lower-income cohorts appear to be bringing inflation down (despite the 2025 tariffs and continued government deficits).

All eyes will be on the Fed and Kevin Warsh if inflation continues to cool and the job market continues to soften.

Distress

Yesterday, CRED iQ published this research blog that looks closely at bank-reported multifamily credit stress through Q3 2025.

Overall multifamily delinquency across community, commercial, and savings banks reached 1.37% as of Q3 2025.

That is the highest reading since the post-GFC recovery era, and a trend worth watching coming out of the near-zero stress ZIRP environment that we experienced post-GFC up through most of 2022.

To put this data into context, multifamily delinquency rates held between 0.23% and 0.39% from 2017 through mid-2022.

That era ended as the Fed began its most aggressive rate hiking cycle in decades in March of 2022.

By Q3 2023, overall delinquency had climbed to 0.40% and one year later it hit 0.97% in Q3 2024.

By Q3 2025, the rate hit 1.37%, a 3.4x increase in just two years.

In dollar terms, the total delinquent multifamily loan balance grew from approximately $2.4 billion in Q3 2023 to nearly $8.9 billion in Q3 2025. That is more than $6.5 billion of additional stress in 24 months.

What makes this cycle worth watching closely is where that stress is concentrated.

Serious delinquencies, loans 90 days or more past due, represent the majority of the exposure at 1.09%, or roughly $7.1 billion. These are not early-stage problems. Borrowers at this point have generally exhausted short-term remedies, which means lenders are increasingly facing resolution decisions (forced short sales, REOs, & foreclosures) rather than extension conversations.

For reference, GFC-era total delinquencies exceeded 5.7% at the cycle's worst.

Current levels are well below the GFC-era, but the velocity of this cycle is faster than what the GFC produced, driven by floating-rate exposure, rapid cap rate expansion, and value declines concentrated in specific markets and vintages.

The behavioral shift among servicers is also worth noting.

According to separate CRED iQ data on CMBS workout strategies, foreclosure balances rose from approximately $9.5 billion in December 2024 to $15.9 billion in December 2025, a whopping 68% year-over-year increase.

Loan modifications and extensions grew only modestly, from $9.1 billion to $9.5 billion.

Translation: Servicers are moving toward resolution, not deferral.

This tracks with Prediction #5 from TMD 052, where I anticipated transaction volume would increase in 2026 as distress materialized. The data is trending in that direction, and it's worth watching as 2026 unfolds.

Summary

Bank-reported multifamily delinquency reached 1.37% in Q3 2025, a 3.4x increase in two years, with $8.9 billion in total delinquent balances. Serious delinquencies (90+ days) account for $7.1 billion of that figure. Servicers are pivoting from extensions toward foreclosure and resolution, with CMBS foreclosure balances up 68% year-over-year.

The lender and servicer tides are shifting. As a result, maturity driven sales (both elective and distress-related) should lead to Multifamily sales volume growth in 2026.

Leasing

Leasing demand is showing early signs of improvement coming out of the holiday period.

Traffic is picking up, prospect interest is returning, and these first 4-6 weeks of Q1 feel more active than the back half of Q4.

That said, the supply and demand picture deserves a more careful look than the headline narrative suggests.

Supply

The U.S. Census Bureau's December 2025 construction data tells a story that I think is underreported.

Multifamily starts finished 2025 on a high note, up 10.1% month-over-month in December to a seasonally adjusted annual rate of 402,000, the highest reading of 2025. Total housing starts rose 6.2% to 1.404 million, beating forecasts of 1.33 million. Multifamily permits jumped to 515,000 in December.

The supply slowdown is real, but it is not slowing as fast as many predicted.

670,000 apartments were actively under construction at year-end, down 12.9% year-over-year and 2.3% from November. Census completions ran at an annualized 483,000 in December, down 15.9% year-over-year. And Yardi Matrix projects 2026 deliveries at 469,000 units, down 21% from 590,000 in 2025.

While that may sound like relief, context matters: The pre-pandemic average from 2013 to 2019 was 317,000 units per year.

Even a "moderating" 2026 delivery environment is still ~48% above the post-GFC historical baseline.

The takeaway?

The pipeline is shrinking, but slowly, and the delivery wave is decelerating, not ending.

Demand

An underreported story, in my opinion, is what is happening on the demand side.

​Yardi's January report noted that Q4 2025 absorption dropped roughly 80% compared to Q2 2025. If absorption continues to slow while deliveries remain elevated, the supply-demand math does not improve as quickly as the bull case assumes.

This is the one-two punch to watch in 2026: supply is falling more slowly than predicted, and demand is absorbing more slowly than predicted.

There are also two near-term headwinds flagged in the Census release: rising construction costs from tariff uncertainty, and unusually severe winter weather across the South, the country's largest housing market.

January and February readings may come in soft as a result. If they do, expect the "supply is finally slowing" narrative to gain momentum. I would encourage reading that carefully, because the underlying data suggests it would only be partially true.

At our properties, renters remain cost-conscious, particularly in the B and C Class segment. Concessions and specials are still part of leasing vacant units that would otherwise take longer. $500 off first month, two weeks free, gift cards, move-in incentives are all representative of where we are in the cycle.

​CoStar's February 10 forecast revised Q1 2026 national rent growth up 60 basis points to positive 0.2%, while trimming the Q4 2026 projection from positive 1.0% to positive 0.6%. National vacancy is projected at 8.5% through year-end. That trajectory is consistent with what I described in TMD 033 as "incentivized demand."

Occupancy is holding in many markets, but it is being supported by concessions and soft rents rather than organic pricing power.

Renewals continue to be a bright spot for most operators. Existing residents continue to renew at modest increases, which suggests that residents value relative price stability and convenience, even if new prospects are more price-sensitive.

Summary

The supply picture is more nuanced than the headline narrative suggests. December 2025 Census data shows starts at their highest point of 2025, with 670,000 units still under construction. 2026 projected deliveries of 469,000 units are down 21% from 2025, but still run 48% above the pre-pandemic historical average.

At the same time, Q4 2025 absorption dropped roughly 80% from Q2 levels per Yardi.

The one-two punch to watch: supply is moderating more slowly than expected, and demand is softening faster than expected.

The Multifamily recovery continues to move at its own pace.

Weekly Listen

This week's recommendation is the most recent Walker Webcast, hosted by Willy Walker, Chairman and CEO of Walker and Dunlop.

In this episode, recorded live at the 2026 MBA CREF Conference, Willy is joined by three of the most senior voices in CRE capital markets: James Millon, President and Co-Head of Capital Markets at CBRE; Justin Wheeler, CEO of Berkadia; and Michelle Herrick, Head of Commercial Real Estate at JPMorganChase. Together, they cover the state of the CRE market, what may finally unlock the gap between buyers and sellers, and how AI and data centers are reshaping investment and lending.

If you want a direct read on where institutional capital is positioned heading into the second half of 2026, this is worth your time.

You can watch the full episode here.

Wrap Up

That's it for today. I hope you found this edition of The Multifamily Download insightful.

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