Commercial mortgage balances continued to grow in Q2 even as new loan originations dropped
Commercial and multifamily mortgage debt continued to rise in the second quarter of 2024, even as the volume of new loans slowed significantly.
The total debt outstanding for commercial and multifamily mortgages increased by $31.4 billion, or 0.7%, pushing the total to $4.69 trillion, according to the Mortgage Bankers Association (MBA).
“Commercial mortgage debt outstanding grew at a modest pace in the second quarter,” said Jamie Woodwell, head of commercial real estate research at MBA. “With fewer loans paying off, CRE mortgage balances have continued to grow in recent quarters despite a marked fall-off in the volume of loans being made.”
Woodwell also noted that every major capital source increased its holdings of mortgages backed by income-generating properties. Life insurance companies saw the largest growth in holdings at 1.8%, while banks’ holdings increased by just 0.2%.
Real Estate Investment Trusts (REITs) saw the largest percentage increase in their multifamily mortgage debt holdings, growing by 7.8%. On the flip side, state and local government retirement funds saw the biggest decline in their multifamily mortgage debt holdings, down 12.8%.
Multifamily mortgage debt alone grew by $19.4 billion (0.9%) to reach $2.09 trillion, with agency and GSE portfolios holding the largest share at 49% ($1.02 trillion). Banks and thrifts followed, holding 30% ($625 billion), and life insurance companies accounted for 11% ($234 billion).
Commercial banks remain the largest holders of commercial/multifamily mortgage debt, holding $1.8 trillion or 38% of the total. Federal agencies and government-sponsored enterprises (GSEs), along with mortgage-backed securities (MBS), are the second-largest holders with $1.02 trillion, representing 22% of the market.
Life insurance companies hold 16% of the total at $735 billion, while commercial mortgage-backed securities (CMBS), collateralized debt obligations (CDOs), and other asset-backed securities (ABS) account for $609 billion, or 13%.
Woodwell expects long-term interest rates, which have fallen significantly compared to last year, to help boost loan origination activity in the coming quarters.
“We anticipate that long-term interest rates, which are significantly lower than a year ago, will help increase origination activity in coming quarters – boosting both new loans coming onto the books and the payoff of existing ones,” Woodwell said in the report.
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