Higher interest rates and other property fundamentals contribute to the slowdown
Commercial and multifamily loan origination activity remained subdued in the second quarter, according to the Mortgage Bankers Association’s (MBA) quarterly survey.
Mortgage originations of loans backed by commercial and multifamily properties were 53% lower compared to a year ago due to the fluctuation in mortgage rates. Despite the pressure weighing on the sector, CRE borrowing and lending activity jumped 23% from the first quarter.
“Origination volumes picked up from the first quarter but were less than half the level of a very strong quarter a year earlier,” said Jamie Woodwell, head of commercial real estate research at MBA. “Higher interest rates, uncertainty about property values, and questions about some property fundamentals are all contributing to the slowdown.”
In its recent forecast, MBA said it expects a $504 billion plunge in commercial/multifamily lending volumes, down 38% from $816 billion in 2022.
Read more: Why the commercial real estate market is expected to sink $504 billion
All commercial property types registered lower origination volumes in Q2: dollar volume of loans for healthcare properties was down 74% annually, office property originations were down 66%, retail and industrial properties both saw a 55% decline, multifamily loan volume fell 48%, and hotel properties slumped 32%.
Among investor types, depositories reported the largest decrease (69%) in the dollar volume of loans, followed by a 60% decrease for investor-driven lenders, a 49% decrease in life insurance company loans, a 23% decrease for commercial mortgage-backed securities (CMBS), and an 11% decrease in the dollar volume of loans backed by Fannie Mae and Freddie Mac.
“We expect the logjam to begin to break in coming quarters, but the path forward will depend on where interest rates and other aspects of the economy go from here,” Woodwell said.
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