The U.S. apartment market shows signs of recovery as appreciation has turned positive in first half 2025. Property values, which had declined between 15 percent and 20 percent on average from their 2022 peak, are beginning to rebound nationally.

As supply pressures begin to ease, this should help set the stage for stronger net operating incomes and better margins. While most investors remain optimistic about apartments given the fundamentals, some appear to be pausing to assess the current valuations and, more specifically, the relationship between apartment capitalization rates; borrowing costs; and the 10-year Treasury yields, which are often used as a proxy for “risk-free rate.”

Cap rates in context

The spread between apartment cap rates and the 10-year Treasury has eroded since 2022 and remains near zero today (see “Apartment cap rates and loan rates vs. 10-year Treasury rate,” page 57). The last time such spreads were observed was i