Easing rates spark hope for commercial mortgage lending rebound
After two years of low borrowing levels, the Mortgage Bankers Association has predicted that commercial and multifamily mortgage activity will rebound in the coming quarters.
Total commercial and multifamily mortgage borrowing and lending in 2024 is expected to reach $539 billion, up 26% from the $429 billion recorded in 2023, according to MBA’s latest forecast.
“The recent moderation in interest rates, coupled with the large volume of loans maturing in coming quarters, should prompt an uptick in mortgage borrowing from the low levels we’ve seen over the last two years,” said Jamie Woodwell, head of commercial real estate research at MBA. “The exact timing of the bounce-back will depend on how quickly property owners jump on long-term interest rates that are down significantly from where they were a year ago.”
The broader economic landscape adds to the complexity. As inflation shows signs of cooling and unemployment edges up, there’s ongoing speculation about the Federal Reserve’s next steps. The Federal Open Market Committee (FOMC) has three meetings left this year, and opinions are split on whether there will be further rate cuts. These decisions will hinge on upcoming data related to inflation and employment.
Woodwell also noted that commercial mortgage originations tend to follow property prices closely, and the uncertainty around interest rates has been a major reason for the recent slowdown.
“Many investors hold off selling or refinancing a property in the hope of lower rates,” he explained. “With longer term rates now lower, many of those players are likely to take action. Investors looking to shorter-term financing can also take solace in signs from the Federal Reserve that they will soon begin bringing down the short end of the curve.”
Multifamily lending is also set to increase, with projections showing a rise to $297 billion this year, compared to $246 billion in 2023. The MBA anticipates even stronger growth in 2025, with total lending potentially reaching $665 billion, of which $390 billion could come from multifamily loans.
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The multifamily market, which had previously seen demand far outstrip supply - leading to tight vacancy rates and rapid rent increases - is now facing a different scenario. With more than 900,000 units under construction and about 500,000 new units expected to be completed each year, the market is adjusting to an influx of new inventory. This, combined with higher interest rates and uncertain property values, has slowed the pace of new permits and construction starts.
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