Multifamily, Commercial Lending To Drop 20% In 2023
The Mortgage Bankers Association has once again adjusted its commercial and multifamily lending expectations downward as economic uncertainty continues to constrain the market.
MBA’s latest forecast shows commercial and multifamily borrowing falling 20% in 2023 to $654 billion, down from $816 billion in 2022.
This is a $9 billion reduction from its January prediction.
Multifamily on its own accounts for a 14% drop, slipping from $437 billion in 2022 to $375 billion this year. Apartment investment sales declined at the end of 2022 in response to the Central Bank raising interest rates.
“Higher interest rates, uncertainty about property values, and questions about the outlook for the cash flows of some properties led to a slowdown in commercial real estate transactions and financing beginning in the middle of 2022,” said Jamie Woodwell, MBA’s Head of Commercial Real Estate Research.
“That slowdown is likely to persist through much of this year as investors, lenders, and others look for greater transparency into the markets. We expect maturing loans to begin to break the logjam and provide greater clarity as this year goes on. However, it may take until 2025 for volumes to get back to previous years’ levels.”
Commercial and multifamily mortgage originations dropped by 56% YOY in Q1 and 42% quarterly, the third consecutive decline for both.
MBA leaders say borrowing should rebound in 2024 to $829 billion, with multifamily accounting for $456 billion of that total.
Fannie Mae prepared for possible losses on multifamily loans this year by increasing its loan loss reserves to $11.4 billion in 2022, up from $5.7 billion in 2021. The decision led to its net income falling to $12.9 billion last year.
“We expect there will be economic headwinds in 2023 and that housing affordability will continue to remain a challenge for many homebuyers and renters,” Fannie Mae CEO Priscilla Almovodar said in a statement.
At the same time, some analysts believe the commercial sector could be the trigger for a recession. Small regional lenders with less than $250 billion in assets are facing a crisis of confidence following the collapse of Silicon Valley Bank, Signature Bank, and First Republic Bank. But they account for 80% of commercial real estate lending, according to Goldman Sachs.
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