Small multifamily buildings have long carried higher financial risk, and recent data shows late mortgage payments remain elevated. Yet, there are encouraging signs: delinquency rates have dropped sharply from last year’s historic surge. This article offers a market insight into how small multifamily properties are performing in today’s environment.
Mortgage Delinquencies Remain Highest in Small Multifamily
According to the Federal Reserve Bank of St. Louis, 2.02% of mortgages on two- to four-unit multifamily buildings held by large banks were 60+ days past due in Q1 2025—the highest rate among all residential property types.
By comparison:
- Single-family homes: 1.55% delinquency rate
- Condos/co-ops: 0.73% delinquency rate
- Townhouses: 0.56% delinquency rate
This continues a long-standing pattern. Since 2013, small multifamily buildings have consistently posted higher delinquency levels than other residential segments.
Why Small Multifamily Properties Carry More Risk
Small multifamily assets—typically two to four units—are a vital part of the U.S. rental housing landscape. They disproportionately house lower-income tenants, making them more vulnerable to job losses and economic shocks.
For owners, even a single missed rent payment has an outsized impact compared to larger properties. As the St. Louis Fed notes, smaller properties are more exposed to:
- Vacancy losses
- Nonpayment from tenants
- Economic downturns that weaken rental demand
The Shrinking “Missing Middle” in Multifamily
Small and medium-sized multifamily buildings (2–49 units) make up what’s often called the “missing middle” of U.S. housing. While they once played a significant role in rental supply, their share of the housing market has been shrinking for decades.
- In 1970: 5.9% of U.S. housing stock
- In 2023: just 0.8% of housing stock
This structural decline places even more weight on existing small multifamily properties to serve as critical housing supply.
For a deeper look at housing supply constraints, see our article on Understanding CRE Cap Rates and Market Dynamics.
Signs of Stabilization in 2025
The good news: small multifamily delinquencies have improved dramatically since last year. In 2024, delinquency rates spiked to 15.2%. By Q1 2025, that number fell to 2.02%.
While small multifamily still carries elevated risk, this decline points to stabilization and resilience in a segment that often gets overlooked by larger CRE investors.
Key Takeaway for Investors
Small multifamily properties remain financially vulnerable, but they are also an essential part of the housing ecosystem. With delinquency rates now far below their 2024 peak, investors may find opportunities to acquire stabilized assets in this niche—particularly as demand for affordable rental housing continues to grow.
