A tough year for commercial real estate: MBA predicts steep fall in originations

Commercial and multifamily mortgage lending expected to plummet by nearly half

A tough year for commercial real estate: MBA predicts steep fall in originations

The Mortgage Bankers Association (MBA) recently updated its forecast, signaling a significant downturn in commercial and multifamily mortgage borrowing and lending for this year.

Commercial and multifamily originations are expected to hit $442 billion, a steep 46% drop from 2022’s high of $816 billion. This downturn isn’t just a blip; it’s part of a broader trend, with multifamily lending alone projected to decrease to $285 billion – a 41% fall from last year’s $480 billion.

However, there’s a silver lining on the horizon: the MBA predicts a bounce-back next year, with total commercial real estate lending potentially climbing to $559 billion, and multifamily lending could contribute $339 billion to that total.

Jamie Woodwell, head of commercial real estate research at MBA, shed some light on current market trends: “The logjam in the commercial real estate markets that began last summer has remained firmly in place. Questions about supply and demand dynamics for some properties, the rise and volatility in interest rates, the low number of transactions, and coinciding lack of price discovery have all contributed to a marked decline in demand for new mortgages. Unfortunately, those and other factors will likely continue to exert downward pressure on borrowing and lending volumes in the coming quarters.”

Read more: Upswing in office delinquencies add to commercial real estate distress

Woodwell pointed out that there’s a tight link between the ups and downs of property prices and commercial mortgage originations. The big question mark hanging over the future direction of interest rates is adding to the current slowdown.

“If interest rates and cap rates were to fall, that should help boost values and promote borrowing,” Woodwell said in the report. “If they remain higher for longer, as is increasingly likely, that will suppress activity. This uncertainty is a contributing factor in today’s slowdown.”

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