In our last column on the multifamily sector, we noted that improvements in the apartment sector slowed a bit in the first quarter. Preliminary second quarter data from Reis indicates a decline in the rate of net absorption and a stalling of declines in vacancy.  While this seems to show a continuation of this trend into the second quarter, the reality is more of a mixed bag.

Vacancy was unchanged during the first quarter at 4.3 percent. This marks the first time that the quarterly vacancy rate has not fallen since the first quarter of 2010. Over the last four quarters national vacancies have declined by 50 basis points, a bit slower than last quarter's year-over-year decline in vacancy of 70 basis points. However, this dynamic is somewhat to be expected and not necessarily indicative of a slowing market. As the market gets tighter and tighter, it becomes increasingly difficult for vacancy to continue falling at a high rate as vacant units, or at least palatable vacant units, disappear from the market.

The aforementioned stalling in vacancy decline is more a function of increasing supply than decreasing demand. On the demand side, the sector absorbed 31,973 units in the second quarter, about on par with absorption from one year ago during the second quarter of 2012 and down slightly from the 39,319 units that were absorbed during the first quarter of 2013. Year-to-date, the sector has absorbed more units in 2013 than were absorbed through this point in 2012.

However, new construction is finally starting to pick up a bit. Completions during the second quarter were 26,584 units, an increase relative to last quarter's 16,578 units and slightly below the 29,523 units that were delivered during the fourth quarter of 2012. This appears to be the front end of the relatively large wave of new supply that is estimated to come online over the next few years. In 2013, over 100,000 units are expected to enter the market, with the majority expected to come online in the second half of the year. Nonetheless, new units continue to be absorbed as they come online.

Asking and effective rents grew by 0.6 percent and 0.7 percent, respectively, during the second quarter. This is a slight increase relative to the first quarter when asking and effective rents grew by 0.5 percent and 0.6 percent, respectively. However, during the last few quarters rent growth has slowed relative to the mini-spike that was observed during mid-2012 when it appeared that rent growth might finally shift into a higher gear.

Moreover, year-over-year rent growth has now slowed in two consecutive quarters. Given how tight the market has become, conventional economics dictates that rent growth should be accelerating, especially since new units tend to have higher-than-market-average rents. Instead, rent growth remains muted due to the ongoing weakness in the labor market (resilient though it has been) and tepid income growth.

Metro-level economics continues to play a large role in the relative performance of metro areas. Of the top 10 markets ranked by year-over-year effective rent growth, seven are technology- or energy-oriented markets, mirroring the dynamic that is also occurring in the office sector. These sectors of the economy continue to be the best performers. Meanwhile, the markets at the bottom of this ranking are a bit more diverse—some are industrial markets, some are formerly high-flying housing markets, some are already expensive East Coast markets. One noteworthy market near the bottom is Washington, DC. It continues to slide further down this ranking and with sequestration starting to bite, that slide is unlikely to reverse in the near future. And as we noted in our last column on multifamily, a wave of completions are expected to come online in the metro in the next year.

The outlook for 2013 is sturdy but not spectacular. Even with new completions beginning to ramp up, demand will continue to outpace new construction for the remainder of the year. However, the difference between net absorption and new completions will narrow. If vacancy drops any further, the decline will only be marginal. We do not expect the vacancy rate to drop below 4.0 percent on the national level. Any major improvements in fundamentals will have to come in the form of rent growth, but it is likely that slow income growth and the influx of new supply will not allow any significant jump in rent growth in the near term.

The greatest wild card at this juncture is the housing market. It has been somewhat resurgent over the last year - both pricing and sales have been on an upward trajectory. As of April, year-over-year home prices rose in all 20 cities of the Standard & Poor's Case-Shiller index, up 12.1 percent from April 2012. This marks the biggest year-over-year increase since March 2006. But with mortgage rates experiencing a mini-spike since early May, it remains unclear what affect this will have on the market.

However, history shows that the health of the overall economy usually plays a larger role in the housing market than interest rates. If the economy and labor market continue their slow recovery, this could siphon some marginal demand away from the apartment market as many people who deferred purchasing a home while prices were spiraling downward jump back into the market.

Anticipation of higher prices and even higher mortgage rates, married with higher apartment rents, just might be the right combination of factors to cause this to occur. We still expect demand for apartments to remain strong in the near future, but the second half of 2013 will be a significant test for the sector with the housing market recovery expected to continue and a wave of new supply slated to come online. The most optimistic of rent growth projections appear to be tamed for the time being.

Brad Doremus is senior analyst and Victor Calanog is head of research and economics for New York-based research firm Reis.