Commercial and Multifamily Mortgage Borrowing, Lending Expected to Fall by $766B This Year

Commercial and multifamily mortgage borrowing and lending will fall a predicted $766 billion this year, a decrease of 14% year-over-year, according to the Mortgage Bankers Association’s updated baseline forecast released this week.  The association’s baseline forecast released in July had predicted total financing to fall by 18% to $733 billion.

And while multifamily lending alone is predicted to drop to $455 billion this year, MBA says borrowing and lending will likely bounce back next year to $848 billion in total commercial real estate lending and $451 billion in multifamily lending.

However, MBA brass are quick to note that its CREF Forecast is based on a baseline economic forecast, “but the outlook is particularly uncertain” at the moment.

“Different macroeconomic paths could lead to very different outcomes around the demand for and supply of commercial mortgage debt,” the organization notes in a statement.  “Should the economy enter a recession, which has become considerably more likely, commercial and multifamily borrowing and lending would likely be further constrained.”

Jamie Woodwell, MBA’s Vice President for Commercial Real Estate Research, said the association expects a “significant” slowdown during the second half of the year, driven by rising interest rates and capitalization rates and uncertainty among buyers, sellers, and other stakeholders about valuations.

“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,” Woodwell said. “There was a record level of borrowing and lending during the first half of this year…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.”

According to a recent Marcus & Millichap survey, the top two investor concerns are interest rates and inflation – but two-thirds of investors surveyed said interest rate increases aren’t affecting their investment plans, while almost 9% said they’d buy more commercial real estate because of rising interest rates. The buying intentions with respect to more inflation-resistant property types like apartments, hotels and self-storage indexed higher, with about 14.4% of investors overall saying they’d buy more of those assets because of elevated inflation.