Consumer confidence divergence is a macroeconomic condition in which household sentiment splits along income lines, with upper-income consumers growing more optimistic while lower-income consumers become increasingly pessimistic. Torsten Slok at Apollo Global Management has been tracking this split in his Daily Spark research, and the gap is now the widest since 2008. If you own or lend against multifamily, this is the single most important data point for your underwriting right now.
What Does the Confidence Split Look Like?
The gap between upper-income and lower-income consumer confidence has reached its widest level since the Global Financial Crisis, with upper-income confidence rising 12% year-over-year while lower-income confidence has fallen 18% over the same period. Torsten Slok’s Apollo Daily Spark data shows this isn’t a blip — the divergence has widened for five consecutive quarters.
Slok’s framing is precise: “We are looking at a two-speed consumer economy where the top 40% of households by income are spending as if the economy is booming while the bottom 40% are behaving as if we’re already in recession.” The middle 20% is splitting toward the lower cohort, which is the more concerning signal.
This matters for multifamily because your tenant base is your revenue. And the tenant base for a luxury Class A high-rise in Austin looks nothing like the tenant base for a 1980s-vintage Class C garden-style complex in Memphis. They are, economically speaking, living in different countries right now.
Claudia Sahm, the economist behind the Sahm Rule recession indicator, has been monitoring labor market data by income cohort. Her Substack analysis shows that job openings in sectors employing workers earning under $50,000 annually have declined 22% from their 2023 peak, while openings in sectors paying over $100,000 have declined only 6%. The labor market is cooling, but it’s cooling from the bottom up.
How Does This Affect Rent Growth by Property Class?
The confidence split is already showing up in rent growth data, with Class A properties posting 2.8% annual effective rent growth while Class B and C properties have seen growth stall or turn negative in several markets. Jay Parsons at RealPage has been the clearest voice documenting this bifurcation with granular lease-transaction data.
Parsons’ Q2 2026 data reveals the divergence:
| Property Class | YoY Effective Rent Growth | Occupancy Trend | Concession Activity |
|---|---|---|---|
| Class A | +2.8% | Stable at 94.2% | Minimal |
| Class B | +0.4% | Declining, now 92.1% | Moderate (0.5-1.0 months) |
| Class C | -1.7% | Declining, now 89.3% | Heavy (1.0-2.0 months) |
Class C rents are falling. Not “growing more slowly” — falling. And occupancy is dropping simultaneously, which means operators are cutting rents and still losing tenants. Jay Parsons noted that “the markets where Class C underperformance is most acute are also the markets where new Class A supply is pushing former Class A tenants into Class B, which pushes Class B tenants into Class C, creating a cascading pressure on the lowest quality tier.”
This cascading effect — sometimes called the “filtering problem” — means Class C distress isn’t just about the economy. It’s about new supply in the luxury segment creating downward pressure across the entire quality spectrum.
What Are the DSCR Implications for Each Class?
The DSCR divergence between property classes is accelerating because rent growth and debt costs are moving in opposite directions for lower-tier properties — rents are flat or declining while financing costs remain elevated. A Class C multifamily property that comfortably passed its DSCR test 18 months ago may now be in technical breach.
DSCR Stress Scenario: Same Leverage, Different Class
Assume a $15M loan at SOFR + 225 bps (current all-in rate: 6.60%), originated in 2022 with a 1.35x DSCR at origination. Here’s how the math has diverged:
| Metric | Class A | Class B | Class C |
|---|---|---|---|
| NOI at origination | $1,336,500 | $1,336,500 | $1,336,500 |
| Cumulative rent growth since origination | +8.4% | +1.2% | -4.8% |
| Cumulative expense growth since origination | +12.0% | +14.5% | +16.2% |
| Current estimated NOI | $1,298,000 | $1,158,000 | $1,048,000 |
| Current annual debt service | $990,000 | $990,000 | $990,000 |
| Current DSCR | 1.31x | 1.17x | 1.06x |
| Covenant minimum | 1.20x | 1.20x | 1.20x |
| Cushion / (deficit) | +0.11x | -0.03x | -0.14x |
Class B is already below the typical covenant threshold. Class C is deeply underwater. And these numbers assume the borrower has a rate cap in place — an unhedged floating-rate Class C loan would be worse.
Notice that even Class A NOI has declined slightly despite positive rent growth, because expenses (insurance, property taxes, payroll) have grown faster than rents. Slok’s data on insurance cost inflation — up 18% nationally for multifamily properties in the past two years — is a key driver that applies across all classes.
How Should You Stress-Test Your Multifamily Portfolio?
Stress-testing for the confidence divergence requires segmenting your portfolio by tenant income profile, not just by property class label, because a “Class B” in a high-income market behaves differently than a “Class B” in a low-income market. The borrowers who are ahead of this trade are running scenarios that match Slok’s confidence data to their specific tenant demographics.
Four-Step Stress Test
1. Segment by median tenant income. Pull your rent rolls and estimate median household income for each property. Anything under $50,000 median tenant income is in the high-risk zone — that’s the cohort where Claudia Sahm’s labor data shows the steepest job opening declines (22% from peak) and where Slok’s confidence data shows the sharpest deterioration.
2. Model rent growth by segment. Don’t apply a uniform rent growth assumption across your portfolio. Use Jay Parsons’ RealPage data as a benchmark: +2-3% for Class A, 0-1% for Class B, and -1 to -2% for Class C. If your market has significant new supply in the pipeline, shade these numbers down by another 50-100 basis points for Class B and C.
3. Model expense growth separately. Insurance and property tax inflation are running 8-12% annually in many markets and hit lower-tier properties harder on a per-unit basis. Claudia Sahm noted that “the labor market softening is concentrated in exactly the sectors where multifamily operating staff are hired — maintenance, custodial, food service — which means wage pressure for property operations may actually persist even as the broader economy cools.”
4. Run DSCR projections at current rates — and at rates +50 bps. Combine the income-differentiated rent growth, the elevated expense growth, and a rate stress scenario. For any loan where the projected DSCR drops below 1.15x, you should be having a lender conversation now, not at maturity.
What Should Borrowers Do Right Now?
The confidence split is not a forecast — it’s current data. The divergence between upper-income and lower-income sentiment is already flowing through to rent collections, occupancy, and concession activity in real time. Waiting for the next quarter’s data to confirm the trend means losing another quarter of positioning time.
Class A owners: You’re in the strongest position but not immune. Monitor new supply in your market closely — Jay Parsons’ data shows that markets with Class A supply exceeding 5% of existing inventory are at risk of rent growth deceleration even for top-tier properties.
Class B owners: Your position is deteriorating and the trend is against you. If your DSCR cushion is less than 15 basis points, proactively reach out to your lender with a plan. Showing up with a credible NOI improvement strategy is far better than triggering a covenant breach.
Class C owners: This is a capital structure problem, not an operating problem. If your DSCR is below covenant and trending worse, you need to evaluate whether additional equity, a loan modification, or a disposition is the right answer. The data from Slok and Parsons suggests the low-income consumer is not recovering quickly.
Frequently Asked Questions
What is the consumer confidence divergence? Torsten Slok at Apollo tracks consumer confidence by income cohort. His data shows upper-income confidence rising 12% year-over-year while lower-income confidence has fallen 18%. This is the widest gap since 2008 and has been widening for five consecutive quarters. It signals that economic conditions for high-income and low-income households have fundamentally decoupled.
Why does this matter more for multifamily than other CRE? Multifamily revenue comes directly from household income. Unlike office (driven by corporate budgets) or industrial (driven by trade volumes), multifamily cash flows are a direct function of tenant ability to pay rent. When low-income confidence falls, it translates to rent collection pressure, increased concessions, and occupancy declines at Class B and C properties — the majority of the multifamily stock.
Is this a recession signal? Claudia Sahm’s labor market data shows that job openings in lower-wage sectors have declined 22% from their 2023 peak, while higher-wage openings are down only 6%. This selective cooling pattern is consistent with a “rolling recession” that affects lower-income households without triggering the broad-based indicators (like the Sahm Rule itself) that would mark an official recession. For multifamily underwriting, whether it’s technically a recession matters less than whether your tenants can pay rent.
How do I know if my property is exposed? Segment your portfolio by median tenant household income. Properties where the median tenant earns under $50,000 are in the high-risk cohort. Cross-reference with Jay Parsons’ RealPage data on your specific market and submarket for rent growth and concession trends. If you’re seeing occupancy below 91% and offering concessions exceeding one month, you’re already experiencing the effects.
Should I sell my Class C assets? That depends on your capital structure and time horizon. If your DSCR is below covenant minimum and your loan matures within 18 months, a disposition may be the most capital-efficient decision — especially if the alternative is a cash-in refinance at a rate that doesn’t pencil. If your DSCR has cushion and your loan term extends beyond 2028, there may be value in holding through the cycle. Run the numbers both ways.
JP Conklin is the founder and CEO of Pensford and LoanBoss. He has spent 20+ years advising CRE borrowers on interest rate strategy.