A 15% Drop in Commercial Loan Production in 2023: MBA Forecasts
However, 2022 comes in better than expected for real estate-backed loans.
The Mortgage Bankers Association on Monday lowered its forecast slightly for this year’s production of commercial mortgages backed by real estate, while raising its estimate for last year.
The mathematical result is a forecast showing a much sharper percentage drop this year than the one predicted in the MBA’s last forecast released Jan. 5, and a larger recovery in 2024.
Monday’s forecast predicted total lending will fall 15% to $684 billion in 2023, compared with January’s forecast of a 5% drop to $700 billion this year.
The MBA said it now expects multi-family loans to fall 16% to $384 billion in 2023, compared with the 10% drop to $393 billion in January’s forecast.
Jamie Woodwell, the MBA’s head of commercial real estate research, said the forecast assumes “economic weakness at the start of 2023 with a moderation in interest rates and an overall improvement in the economy as the year goes on.”
“Given changes in interest rates and investment yields over the last year, new deals and loans are sizing differently than in previous years,” Woodwell said. “These new changes will take time for buyers and sellers to digest, and we expect the logjam to suppress volumes this year.”
Woodwell said the last decade has seen tremendous growth in property incomes and values – both of which will support properties’ abilities to support new long-term loans. “Properties with interest rate resets and shorter-term loans that transacted or refinanced more recently will be much more dependent on the particulars of that loan and property,” he said.
The MBA raised its forecast slightly for 2024. It said it expects total commercial real estate originations of $906 billion, including $486 billion in multifamily loans.
But the MBA raised its estimates for 2022 production significantly. It estimated total commercial real estate originations were $804 billion, a 9% upward revision from the $740 billion in January’s forecast. A year ago the MBA had forecast commercial real estate would rise 20% to top $1 trillion in 2022, but it revised those forecasts downward the rest of the year.
Multifamily originations in 2022 are now estimated at $459 billion, up from $439 billion in January’s forecast.
Credit unions were performing better last year than the banks and other for-profits tracked by the MBA.
While the MBA said Monday that total commercial real estate production in the fourth quarter was 54% less than a year earlier, it fell only 27% among 25 credit unions tracked by CU Times because they were the largest first mortgage producers in 2021.
That’s not a perfect comparison, but a handy one, and the 25 credit unions accounted for 19% of credit union commercial loan production in 2021. NCUA data that includes all credit unions has also been showing credit unions outperforming others through the third quarter of 2022.
Nevertheless, Woodwell said the trend was clearly down for the fourth quarter.
“The last quarter of the year typically sees the highest volumes, but the chill caused by rising interest rates, questions about property valuations, and increased economic uncertainty made the fourth quarter of 2022 the weakest of the year,” Woodwell said.