The second quarter of 2026 provided some encouraging signs that the local multifamily market may finally be approaching the end of a downturn that has now persisted for roughly four years. Transaction volume improved meaningfully, several pricing metrics moved higher, and income-based valuations appear to be stabilizing near levels we have not seen since the beginning of the last real estate cycle. There are still significant headwinds, particularly with interest rates and rising inventory, but the data increasingly suggests that we may be looking at either the early stages of a recovery or, at the very least, a market that has finally found a floor.
Transaction volume came in at 248 sales in the second quarter, up considerably from only 168 in Q1. Some of that improvement is seasonal, as the first quarter is typically the quietest period of the year after investors rush to complete transactions before year-end for tax purposes. Q4 of 2025, by comparison, saw 263 sales. More encouraging is the year-over-year comparison: Q2 volume increased from 209 transactions in 2025 to 248 in 2026. If that trend continues, it would suggest that buyer sentiment is gradually improving and that investors are becoming increasingly comfortable putting capital back to work at current valuations.
Income Metrics Begin to Stabilize
Gross rent multiplier averaged 14.7 across all multifamily sales in the quarter, including both smaller 2–4 unit properties and larger 5+ unit commercial multifamily assets. That represents a modest increase from 14.2 in Q1 and 14.1 in Q4 of 2025. While quarterly numbers can move around depending on the mix of properties and submarkets represented in a relatively small dataset, two consecutive quarters of improvement raises the possibility that Q4 of 2025 marked the bottom in valuations for this cycle.
Cap rates told a similar, though slightly more muted, story. The average cap rate held at 4.8%, unchanged from Q1 and down 10 basis points from 4.9% in Q4 of 2025. If that trend holds, we may be seeing the same floor developing in cap rates that is beginning to emerge in GRM.
The price metrics were even more encouraging. Average price per square foot increased to $519, up considerably from $479 in Q1 and $491 in Q4 of 2025. It was also above the $510 recorded in Q3 of last year. Price per square foot can fluctuate depending on the number of transactions occurring in higher-priced submarkets, but we have not seen an average at this level since Q3 of 2022, when the current downturn was only beginning.
Price per unit also moved meaningfully higher, averaging approximately $459,000 per door, compared with $414,000 in Q1. Taken together, the pricing data suggests that buyers may finally be responding to the significant repricing that has occurred over the last four years.
Rising Inventory Complicates the Recovery
Inventory, however, remains the major counterpoint to the improving transaction and pricing data. We pay particularly close attention to active listings because inventory can provide an early indication of the balance of power between buyers and sellers.
Average inventory reached approximately 757 active listings during Q2, approaching the elevated levels we experienced last summer. That increase can likely be attributed to a combination of higher interest rates, renewed macroeconomic uncertainty, and the continued reset of commercial multifamily loans originated during the low-rate environment.
The 10-year Treasury has moved back into the mid-to-high 4% range, keeping commercial borrowing costs elevated. At the same time, many of the five-year fixed loans originated or refinanced in 2021 are now reaching the end of their fixed periods and going adjustable. Owners are being forced to choose between bringing additional equity into a refinance, accepting a significantly higher monthly payment, or selling. For those unable or unwilling to negatively cash flow their properties, a sale may be the only practical option.
That dynamic is putting additional inventory onto the market at precisely the same time that higher rates are keeping some buyers on the sidelines.
The contrast with late 2025 is notable. Inventory declined by roughly 200 listings toward the end of last year as inflation appeared to come under better control, the 10-year Treasury fell below 4%, and new bonus depreciation provided an additional incentive for investors to complete transactions before year-end. Inventory has now climbed back toward last summer’s levels amid renewed uncertainty surrounding oil prices, inflation, geopolitical events, and interest rates.
The interesting question is whether rising transaction volume can absorb that additional supply. Volume is increasing at the same time inventory is rising, suggesting buyers are returning even as more properties come to market. Whether that demand is strong enough to support pricing through the remainder of the year will be one of the most important trends to watch.
The Divide Between Small and Large Multifamily Continues to Widen
As has been the case throughout this downturn, the difference between 2–4 unit residential properties and 5+ unit commercial multifamily properties remains one of the most compelling stories in the market.
The two segments continue to move in different directions. Price per square foot on 2–4 unit properties has increased over the last several quarters, while price per square foot for 5+ unit properties has declined. Cap rates, GRMs, and price per unit show a similar divergence, with the valuation spread between the two categories continuing to widen.
The primary reason remains financing. Smaller properties benefit from long-term residential mortgages, including the extraordinarily low 30-year fixed loans many owners secured during the pandemic. Larger multifamily properties are financed with shorter-term commercial debt, leaving their owners far more exposed to the dramatic increase in borrowing costs over the last four years.
For investors with substantial equity in smaller properties, that disconnect continues to create an unusually attractive exchange opportunity. Owners may be able to sell into the relatively strong 2–4 unit market and acquire considerably more income in the depressed 5+ unit market. With commercial multifamily cap rates now back near 2013 levels, an entire cycle of income-based valuation expansion has effectively been erased.
For existing owners caught in that repricing, the adjustment has obviously been painful. For new buyers, however, it presents an opportunity we have not seen in more than a decade.
Are We Entering the Next Cycle?
Looking back over the last 60 years, real estate downturns have generally lasted somewhere in the range of three to five years. We are now roughly four years into the current correction, putting us squarely within that historical window.
That does not mean a recovery is guaranteed in the immediate future. Interest rates remain high, inventory is elevated, and a considerable number of commercial loans still need to work their way through the reset process. But the market does not need everything to be perfect before valuations begin recovering. In fact, recovery often begins while sentiment remains cautious and the underlying economic environment still feels uncomfortable.
With transaction volume improving year over year, GRMs ticking higher, cap rates stabilizing, and price per square foot and price per unit showing meaningful improvement, there is mounting evidence that the market may have already put in its low in late 2025.
If financial conditions begin to normalize and interest rates eventually move lower, today’s elevated cap rates provide considerable room for compression and subsequent appreciation. After four years of adjustment, we may be witnessing the earliest stages of the next cycle.
It remains to be seen whether the improvement of the last two quarters continues through the balance of 2026, particularly with inventory moving higher. But if history is any guide, we are reaching the point in the cycle where the conversation begins to shift from how much further valuations can fall to how much opportunity exists for investors willing to buy before the recovery becomes obvious.
