Rents at the priciest apartments across the country are likely to decline through next year before growing again in 2025, according to a new forecast from private real estate investor Origin Investments.

Apartment rents have flattened out nationally in recent months as a historic wave of new construction has hit the market. Origin, which uses a machine learning tool to predict future rents, expects rents to shrink year-over-year through July, according to its Multilytics rent forecast.

Some reports say rent growth has already turned negative year-over-year, and more supply is on the way. While interest rate increases have slowed new development nationally, approximately 400,000 new multifamily units are expected to be delivered by the end of 2023, with another million in the construction pipeline, according to Origin.

Origin's model predicted a year ago that Class-A multifamily rent growth would start to turn negative because of that supply.

Even with those deliveries, the U.S. will likely still be undersupplied when it comes to housing units. Developers will need to build 4.3 million units by 2035 to keep up with demand, according to the National Multifamily Housing Council.

That continued pressure will lead rent growth to return to between 2% and 3% nationally in January 2025, Origin Investments' model predicts. That change will see rents arriving back at a normalized growth rate, in contrast to the pandemic-triggered rent growth roller coaster.

But to do so, multifamily owners must first contend with “unquantifiable” risks from economic conditions in 2024, the company warned. Macroeconomic conditions including unemployment increases, lower wage growth trends and new supply coming online threaten rent growth and could spur more foreclosures, Origin Investments warned.

“The return to normalization has been expected because the rent growth levels of 2021 and 2022 were unsustainable,” Origin Investments co-CEO David Scherer said in a statement. “We are now paying for the distortions of the past.”

Affordability could also undercut demand and growth. Nationally, renters in the U.S. spent almost 32% of their monthly income on rent — a full 5 percentage points higher than in 2010 and the highest level on record since the 1970s.

Still, rent growth is likely to continue in some of the most popular multifamily investment markets during 2024. Phoenix and Nashville will see growth of up to 5.9%, while Denver will hit 5%, Origin predicted, with Tampa reaching 4.5% and Atlanta seeing a 2.6% increase in rent growth during the year.

“The fact that many markets are returning to positive year-over-year growth is somewhat misleading,” Origin Investments data scientist Ryan Brown said. “While a given market may achieve 3% to 4% growth, you also have to consider the negative growth in 2023. As a result, the return of positive growth may only get you back to the peaks achieved in 2021 and 2022. It will take longer to move beyond that peak.”