After a period of declining valuations, the small multifamily sector rebounded in late 2024, with increasing loan originations and strong occupancy rates suggesting market stabilization.

Valuations Stabilizing

Small multifamily property values saw an upward trend in the second half of 2024, despite a 2.1% year-over-year drop in Q4. However, the pace of decline has slowed, with valuations rising 0.7% from Q3 to Q4, signaling potential market equilibrium. This shift is largely supported by sustained demand for workforce housing.

Loan Originations on the Rise

Loan origination volume increased by 5% in 2024, reaching $46.7 billion—approaching the pre-pandemic average of $50.5 billion (2015–2019). However, higher interest rates have dampened cash-out refinancing, which dropped from 75.6% of total loans in Q3 2022 to 68.4% by the end of 2024.

Cap Rates and Debt Yields Adjusting

Cap rates for small multifamily properties averaged 6% in Q4, approximately 40 basis points higher than the broader multifamily market. Debt yields have also risen, prompting lenders to take a more conservative approach by tightening loan-to-value ratios.

Stronger Occupancy and Operational Performance

Occupancy rates climbed to 97.5% in Q4, reflecting strong absorption of new supply. Additionally, expense ratios improved to 41.0%, down from 42.6% a year earlier, indicating financial stabilization at the property level.

Key Takeaway

Despite headwinds from rising interest rates, the small multifamily sector is showing signs of recovery, driven by robust demand for