MBA Reports Weakness in Loans for New Homes, Commercial Real Estate

The Mortgage Bankers Association on Tuesday reported lower mortgage applications for new homes in June, and forecast that commercial real estate lending would fall in the second half of 2022.

The MBA’s Builder Application Survey for June showed mortgage applications for new home purchases fell 12% compared to a year ago. Compared to May 2022, applications decreased by 10%. This change did not include any adjustment for typical seasonal patterns.

Joel Kan, the MBA’s assistant vice president of economic and industry forecasting, said the MBA estimates new single-family home sales were running at a seasonally adjusted annual rate of 620,000 units in June, down 14.7% from May.

“New residential construction and permitting activity weakened from March through May, reducing the number of homes available for home buyers,” Kan said.

“Higher mortgage rates and heightened economic uncertainty cooled borrower demand in June, leading to new-home purchase applications declining to the lowest level since April 2020,” he said.

The nation’s third-largest credit union is already feeling the pinch in mortgage originations.

PenFed Credit Union of Tysons, Va. ($36.6 billion in assets, 2.8 million members as of June 30) doubled its originations from 2020 to 2021, but its second-quarter volume of $3.4 billion was 20% lower than a year earlier.

President/CEO James Schenck said on July 14 that he expects overall loan demand will fall in the second half as the Federal Reserve continues to raise interest rates.

Meanwhile, the MBA also released a forecast Tuesday that total commercial and multifamily mortgage lending is expected to fall to $733 billion this year, down 18% from 2021’s $891 billion.

It was the MBA’s second downward revision for commercial real estate production this year. The new forecast of $733 billion compared with the MBA’s February forecast of more than $1 trillion for 2022, which in April it revised down to $895 billion.

Jamie Woodwell, the MBA’s vice president for commercial real estate research, said multifamily lending, the largest portion, is expected to drop to $436 billion in 2022 – a 10% decline from last year’s record of $487 billion. That compared with the MBA’s February forecast of $474 billion, which in April it revised down to $442 billion.

“After a record start to the year, we expect that the rise in rates, ongoing uncertainty about supply and demand balances among some property types and concerns about the direction of the economy will suppress new loan originations in the second half of the year,” Woodwell said.

Woodwell also said the group anticipates lending will improve in 2023 and 2024 because “most commercial real estate market fundamentals remain strong, with significant increases in the incomes and values of many properties in recent years.”

Next year the MBA said it expects a rebound to $872 billion in total commercial real estate lending and $454 billion in multifamily lending. In April, the MBA had forecasted total commercial real estate originations in 2023 would be $950 billion.

“The direction of the economy, which remains uncertain, will be a major driver of the magnitude and timing of market changes,” Woodwell said. “Should the economy enter a recession, which — if it were to happen — would most likely come in the first half of 2023, commercial and multifamily borrowing and lending would likely be further constrained.”