Home values in Massachusetts continue to decline, but much to the dismay of the real estate industry, the sales volume of single-family homes and condos hasn’t appreciably increased.

The one facet of the market that’s rich with sales from reduced prices is multi-family homes, which can produce an instant cash flow for owner/occupants or investors. So while single-family homes and condos are still searching for buyers, multi-families are booming.

“The prices are obviously way down, which is creating the demand [for multi-family homes],” said Michael DiMella, managing partner at Charlesgate Realty in Boston. “It’s driving people into the market, along with the low interest rates. It’s giving people a very positive cash-flow investment, or a relatively inexpensive home. These people are looking at multi-families for the same price as a condo or single family elsewhere.

“I swear, we can’t even hold them on the market when we bring them on,” DiMella added.

Booming Indeed

First quarter sales volume for two- and three-family homes has increased by 46 percent in 2009 over 2008, while the median sales price fell 30 percent in the same period, according to The Warren Group, publisher of Banker & Tradesman.

Michael Hurney, director of the Massachusetts Real Estate Investors Association, said at the height of the market in 2005, purchasing multi-families didn’t make sense for investors. Properties were overvalued, and there was no way to profit from fixing and flipping, or renting.

With the median sales price in the first quarter of this year at $179,900 for two-family homes, and $155,000 for three-family homes, according to The Warren Group, the properties can instantly be rented and produce income.

“Now, those same [houses] are flying off the market from banks and short sales,” Hurney said. “Now, they [produce] cash flow.”

Multi-family homes also present opportunities for first-time homebuyers, with the additional rent income helping to pay their mortgage. Organizations like the Massachusetts Housing Partnership (MHP) and the Citizens Housing and Planning Association (CHAPA) encourage buyers just getting into the market to consider buying a multi-family home as their first ownership experience.

“We have been, since 1990, working to provide financing for lower income families to buy two- and three- family houses in way that we think will be successful,” said Clark Ziegler, executive director of MHP. “We think it’s been a great success story. Getting those properties in particular into stable ownership has a particularly good affect on neighborhoods.”

Building on the successes from their soft second loan program, MHP is creating an “enhanced” program to encourage first-time homebuyers to buy multi-families and live in one of the units. MHP is carefully trying to fill foreclosed multi-family homes with owners they consider responsible. The organization is concerned about “bottom feeders” who will not maintain their properties, and with municipal budgets in tatters, building code enforcement will likely become more lax.

“In terms of the good and the bad for investor interest, obviously having private capital flowing into our housing stock is a sign of recovery,” said Ziegler. “It shows belief in our housing market.

“The flip side is the motivation of those investors, and how many of them are looking to flip properties for quick profit. How many of them want to milk them for rent without adequately maintaining them, and how many want to hold on to them for the long term. In an environment where all owners are held to a reasonable standard … this would be less of a concern. If we really had the capacity to ensure that landlords act responsibly, this would be less of a worry.”

MHP has a program to enable non- and for-profit developers to bundle bank-owned multi-family homes into one purchase and one loan, in a neighborhood hard hit by foreclosures. That program uses state and federal neighborhood stabilization funds.

Rental Market ‘Getting Stronger’

The number of possible renters is growing in neighborhoods where banks have seized several properties. Families who have lost their homes need another place to live and are unable to secure mortgages.

“[The rental market] is getting stronger,” said Barbara Shea McDonald, broker/owner of Barbara Shea McDonald Real Estate in Westwood. “The expectation is that it will continue to – with the unfortunate coincidence of the foreclosures. Those people need some place to go to, and often they become renters.”

Shea McDonald, who is also a member of the board of directors for Massachusetts Association of Realtors, said her last two multi-families were bank-owned properties bought by investors, who wrote a check for the entire balance. It is still difficult for would-be owner/occupants to find financing for fixing up REOs.

“Banks are reluctant to finance those kinds of things,” Shea McDonald said. “But both of those buyer clients are looking for more opportunities.”