The apartment market just flipped on its own story. For most of 2025, renters couldn't find enough units. By the end of the year, they were handing keys back.
Net absorption averaged 191,000 apartments per quarter in the first half of 2025, according to Marcus & Millichap. It dropped to 35,000 in the third quarter. Then, for the fourth quarter, the number turned negative: 40,000 more units gave up leases than signed new ones.
The cause isn't rent. It's jobs.
Labor force participation among Americans aged 20 to 24 dropped 140 basis points in 2025. That's the steepest fall for any age group. Translation: fewer young adults working, which means fewer young adults signing their own leases.
When young adults can't get career-track jobs, they move back in with family. The share of that age group living at home is now at a record high - surpassing even pandemic-era levels.
That matters because young adults are the hinge of apartment demand. They're the first-time renters. They're the group that keeps absorption positive when everyone else stays put.
Marcus & Millichap says history offers the playbook. In the two years after the pandemic, about two million young adults moved out of family homes. That alone drove 665,000 units of net absorption in 2021.
If the same cycle plays out again, apartment demand could snap back fast once job growth recovers. The Research Brief calls the current slowdown "temporary" for that reason.
But here's the part investors should flag: the recovery only happens if the jobs do. And right now, job growth is slowing, not accelerating.
Publicly traded apartment REITs have held up fine so far in 2026. Rents are stable. Occupancy is high in most markets. The damage from the absorption drop hasn't shown up in earnings yet because most REITs are still releasing units they signed a year ago.
The 2026 earnings season is when the numbers catch up. Watch occupancy guidance, not reported occupancy. And watch the markets where young adults cluster - Sunbelt cities, college towns, and Tier 2 metros. Those are where demand recovers first if it recovers at all.
A demographic group decided to stay home. The apartment market decided for them.
Source: Connect CRE
