Total commercial and multifamily mortgage borrowing and lending is expected to drop to $442 billion this year—a 46% decline from 2022’s total of $816 billion, according to an updated baseline forecast from the Mortgage Bankers Association (MBA). For multifamily lending alone, it is expected to decrease 41% to $285 billion from last year’s total of $480 billion.
Looking ahead to 2024, MBA anticipates borrowing and lending will increase to $559 billion for commercial real estate, with $339 billion of that total for multifamily.
“The logjam in the commercial real estate markets that began last summer has remained firmly in place,” said Jamie Woodwell, MBA’s head of commercial real estate research. “Questions about supply and demand dynamics for some properties, the rise and volatility in interest rates, and 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.”
According to Woodwell, commercial mortgage originations have historically followed property prices. In addition, the uncertainty about the future trajectory of interest rates has been a factor to the slowdown.
“If interest rates and cap rates were to fall, that should help boost values and promote borrowing,” he said. “If they remain higher for longer, as is increasingly likely, that will suppress activity.”
The MBA also reported that delinquency rates for mortgages backed by commercial and multifamily properties increased during the third quarter. This is the fourth consecutive quarter of increases, according to the latest commercial real estate finance Loan Performance Survey.
“Commercial property markets are working through challenges stemming from uncertainty about some properties’ fundamentals, a lack of transparency into where current property values are, and higher and volatile interest rates. The result has been a slow and steady uptick in delinquency rates, concentrated among loans facing more of those challenges,” added Woodwell.
Delinquency rates for multifamily and industrial property loans remain below 1%, while the rate for loans backed by office properties exceeds those of loans backed by retail and hotel properties. For multifamily, 0.9% of balances were delinquent, up from 0.7% the prior quarter.