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Commercial/multifamily lending expected to fall in 2022

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Financial Stability, Nonbank Financial
Tuesday, October 11, 2022

According to updated baseline forecasts from the Mortgage Bankers Association (MBA), total commercial and multifamily mortgage borrowing and lending is expected to fall in 2022 to $766 billion, down 14 percent from 2021 totals ($891 billion).

Multifamily lending alone (which is included in the total figures) is expected to drop to $455 billion in 2022 – a 7 percent decline from last year’s record of $487 billion. MBA anticipates borrowing and lending will rebound in 2023 to $848 billion in total commercial real estate lending and $451 billion in multifamily lending.

We continue to see significant changes, volatility and uncertainty in the space, equity, and debt markets that drive commercial real estate values and transaction volumes,” said Jamie Woodwell, MBA’s vice president for commercial real estate research. “There was a record level of borrowing and lending during the first half of this year. Given market changes, we forecast a significant slowdown in the second half of the year – driven by rising interest rates and capitalization rates and uncertainty among buyers, sellers, and other stakeholders about where market values may lie. As we have noted before, most commercial real estate market fundamentals remain strong, with significant increases in the incomes and values of many properties in recent years. These factors are why MBA expects loan demand to begin to bounce back in 2023 and 2024.”

The new forecast was released along with MBA’s 2022 Q2 quarterly databook report. The data from the report showed a total commercial/multifamily mortgage debt outstanding at $4.38 trillion at the end of the second quarter.

The $99.5 billion increase in commercial and multifamily mortgage debt outstanding in the second quarter was the second largest quarterly rise since the inception of MBA’s data series in 2007. The increase in holdings by depositories was the largest on record. The data match the fact that the first half of 2022 saw more commercial and multifamily borrowing and lending than any previous January through June period.

Commercial banks saw the largest gains in dollar terms in their holdings of commercial/multifamily mortgage debt – an increase of $51.9 billion (3.2 percent). REITs increased their holdings by $22.3 billion (14.4 percent), life insurance companies increased their holdings by $13.1 billion (2.1 percent) and agency and GSE portfolios and MBS increased their holdings by $8.0 billion (0.9 percent).

Delinquency rates for commercial and multifamily mortgages fell again during the second quarter of 2022.  Many capital sources are seeing delinquency rates at or approaching pre-pandemic levels, which were some of the lowest delinquency rates on record.

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