Multi-Family Market

Over the past year, many real estate investors paused as higher mortgage interest rates adversely affected the purchase opportunities in the market. These properties are a desirable property class in large part due to low vacancy rates, rising rents, steady appreciation and tax benefits therefore, owners seemed to be holding on to their properties longer than normal. We are starting to see a slight shift in this part of the market now with a significant increase in newly listed properties. The effect of more inventory available should be evident through the remainder of 2024.

Many real estate investors paused during 2023 as reflected in a 35% decline in properties sold and the minimal change in the median sale price. While residential property sales are largely driven by “life stages or life changes”, the purchases of multi-family and investment properties are driven by analytics. Higher mortgage interest rates adversely affected the purchase opportunities in the market. The number of multi-family units coming to market dropped 10%. These properties are a desirable property class in large part due to low vacancy rates, rising rents, steady appreciation, tax benefits, and a hedge against stock market fluctuations. Owners may be holding onto properties as they perceive a lack of alternative investment options and don’t want to give up their pre-2022, low mortgage rates.

The multi-family market continues to provide owners with solid and predictable investment opportunities.  In Northwest Vermont, the median price grew a modest 2.6% while posting a 45% gain since 2020.  Despite the increase in mortgage interest rates over the past year, demand remains strong for Burlington and Chittenden County properties. In Chittenden County, where 70% of the multi- family sales closed, the median price jumped 10% over the same time last year. 

These properties are a desirable property class in large part due to low vacancy rates, rising rents, steady appreciation, tax benefits, and a hedge against stock market fluctuations. Owners may be holding onto properties as they perceive a lack of alternative investment options and don’t want to give up their pre-2022, low mortgage rates. The 53% decline in sales is a direct correlation to lack of inventory versus demand. Well-located and well-maintained properties, as usual, continue to draw the most interest, selling quickly, in many cases at or above list price.

The multi-family market continues to provide purchasers with solid and predictable investment opportunities. In northwest Vermont, the median sale price rose 14% and in Chittenden County – where 75% of the multi-family sales occur – prices increased by 9.4%. Once again, these increases are driven in large part by strong demand from local and regional investors, lack of inventory, and the increases in rents for the 2022-2023 cycle. Rents had been stable the previous 2 years as landlords held off on increases during the pandemic.

The Chittenden County rental vacancy rate remains below 1%, and despite several new developments coming to the market, locally we still suffer from a lack of available rental properties. Well-located and well-maintained properties, as usual, continue to draw the most interest and are selling quickly and, in many cases, at or above list price.

The multi-family market continues to provide purchasers a more predictable investment opportunity vs. the stock market and other more volatile options. In the first half of 2022, 82 units sold in Chittenden County at a median sale price of $522,500, representing a 6.5% increase over 2021. Most multi-family properties, and therefore transactions, are in Chittenden County.

Rental Market Update

In 2020, rents were held level by many landlords focused on tenant retention during the pandemic. Now, in 2022 based on market conditions and tenant demand, there is significant upward pressure on rents. From the Allen, Brooks & Minor June 2022 report, the average 1 bedroom rent is $1309/month; 2 bedroom rent is $1534; 3 bedroom rent is $2120. The average increase from 2021 was approximately 3.8%. That is likely to sustain or increase in 2022.

Chittenden County, home to most of the region’s rental units, has a historically low vacancy rate. In June 2022, the Allen, Brooks & Minor report recorded a new historic low of 0.4%. The deficient number of available properties puts pressure on tenants to find suitable homes, despite 451 new units coming to market in 2021. The last 10 years averaged 448 units per year.

The modest pace of new construction and population growth continues to pressure an already low vacancy rate. 520 new units are projected to come to market in 2022, located primarily in Burlington, Williston, South Burlington, and Essex/Essex Junction. Much more production is needed to significantly impact the challenging vacancy rate.

In northwest Vermont, the strong investor market is driven by low-interest mortgage rates and solid equity positions in existing properties for owners. The number of investment properties coming on the market grew by more than 40% fueling a 49% increase in the number of units sold. Although the median price rose to $430,000, investment properties offer affordable opportunities for owners who plan to occupy the property and offset their housing costs with rental income.

The rental vacancy rate has been reported at 0.8%, and while rental rates increased only modestly during the pandemic, rates are projected to go up locally and nationally in 2022 and beyond. Many would-be home buyers are opting to stay put in their rentals after unsuccessfully writing multiple offers for purchases.

Some would be first time buyers, struggling with price appreciation and the competitive market, are staying put in rentals providing demand for area landlords. With local businesses hiring more new employees, the demand on the rental market doesn’t look to ease up. Price appreciation, demand for rentals, and a lack of new rental properties coming to market will continue to add to the desirability of owning multi-family properties.

In northwest Vermont, the strong investor market was driven by low-interest mortgage rates and solid equity positions in existing properties for owners. The number of investment properties coming on the market grew by 127% resulting in double the number of properties sold over the same period last year. 

Many would-be buyers are staying put or returning to the rental market after unsuccessfully writing multiple offers for purchases. As local businesses turn back to hiring and recover from the global pandemic, new employees struggle to find affordable housing options in the area. The vacancy rates remain the lowest in 6 years, at just over 1%. If demand, as expected, remains high for rental housing, the desirability of owning multi-family properties will continue.

Owner-occupied properties offer the opportunity for homebuyers to offset their housing costs with rental income – improving affordability.

The investor market remains strong in northwest VT, mostly driven by low-interest rates and strong equity positions in existing properties for owners. The median sale price of $350,000 was stable across the region with 7% growth to $417,300 in Chittenden County.

The number of units sold grew substantially over 2019, while properties coming on the market continued a year over year decline. Burlington, the largest city in Vermont, accounts for most multi-family sales in the region, boasting an average sale price in excess of $700,000.

According to the recently published Allen, Brooks & Minor Report, the apartment vacancy rate in Chittenden County is the lowest reported in the past six years at 1.1%. As long as tenants can stay on top of their rent payments – some struggling with unstable unemployment – and housing for college students remains in high demand, the desirability of owning multi-family properties in the region will continue.

The investor market remains strong in northwest Vermont. The median sale price rose more than 14% across the region as the number of properties for sale plunged. This shortage of inventory resulted in a 20% drop in units sold. Buyers need to act quickly when the right property becomes available. The average days on the market (DOM) is less than three months from listing to contract with many properties selling within days, or even hours, of listing.  

As the Coronavirus spread, businesses shut down and unemployment spiked. Many predicted that tenants might not be able to pay their rent. While this may have played out across the country, landlords in our area have reported that their tenants are up to date on rent. It has yet to be seen what the long term effects of unemployment (and under employment) coupled with the end of the additional $600 unemployment benefit will be for tenants and landlords alike.

Despite newer apartment complexes becoming available over the past couple of years, the vacancy rate for rentals remains low compared to the national average. Demand from renters remains strong due to the shortage of inventory for first-time buyers and the potential buyers moving to Vermont from out of state that may rent for a year to become familiar with the area.

So far in 2020, Coldwell Banker Hickok & Boardman participated in 46% of multi-family property sales in northwest Vermont and 51% in Chittenden County. More than ever, working with an agent experienced in this unique market segment is crucial to meeting your goals.