- Mortgage delinquency rates are highest in small multifamily buildings (2–4 units), reaching 2.02% in Q1 2025—above all other residential categories.
- Despite leading in delinquencies, the current rate is at a 10-year low and well below the 15.20% high seen in Q3 2024.
- These buildings often house lower-income renters and rely on rental income, increasing risk for owners and lenders.
Missing Middle Under Pressure
Per Globe St, small multifamily buildings—defined as those with two to four units—are facing the highest mortgage delinquency rates among residential property types. New data from the Federal Reserve Bank of St. Louis shows that, in Q1 2025, 2.02% of mortgage balances tied to these buildings were overdue by 60 days or more.
Outpacing Other Property Types
In comparison, the delinquency rate was 1.55% for single-family homes. Condos and co-ops saw a rate of 0.73%, while townhouses had the lowest at 0.56%. Researchers say this trend has held steady since at least 2013, with two- to four-unit buildings consistently leading in overdue payments.
Structural Vulnerabilities
These properties fall into the so-called “missing middle”—homes that are too small for institutional backing but too large to be owner-occupied with ease. They house a high share of low-income renters and account for the majority of rental units. That makes them more vulnerable to income disruptions from vacancies, nonpayment, or broader economic shifts.
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A Shrinking Slice of the Market
Small and medium-sized multifamily homes are also disappearing from the housing landscape. Their share of the market dropped from 5.9% in 1970 to just 0.8% in 2023. Still, they make up over 20% of the total housing stock and remain a key source of rental housing in the US.
Silver Lining in the Data
While 2.02% is the highest among property types today, it marks a major improvement. Just last year, in Q3 2024, the delinquency rate for small multifamily buildings hit 15.20%. According to the St. Louis Fed, current conditions are far better than they could be.
Why It Matters
These small buildings are vital to housing affordability and availability. But they’re also financially fragile. Their reliance on rent makes them sensitive to market shocks. That creates risk not just for landlords, but also for banks and communities.
What’s Next
If economic conditions remain stable, delinquency rates could keep falling. But the underlying risks remain. Policymakers, investors, and lenders may need to support this housing segment to avoid deeper stress in a crucial part of the market.
