Multifamily mortgage lending down 44% in first quarter

The pace of commercial and multifamily mortgage lending declined to its lowest level in nine years as U.S. economic uncertainty weighed heavily on the sector, the Mortgage Bankers Association said.

All commercial real estate-secured originations declined 42% compared with the fourth quarter. Multifamily mortgage lending by itself was down 44%, the MBA's Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations found.

On a year-over-year basis, total commercial lending was down 56%, with the multifamily segment 55% lower.

"While the first quarter is typically the quietest quarter of the year, borrowing and lending backed by commercial and multifamily properties declined in the first quarter to the slowest pace since the first quarter of 2014," said Jamie Woodwell, head of commercial real estate research, in a press release. "Uncertainty and volatility in regard to interest rates and property values, and supply and demand imbalances for some property types, has led to a logjam in commercial real estate sales and financing markets."

Commercial real estate lending activity is influenced by maturing loans' ability to refinance when they come due. Back in February, the MBA predicted $384 billion in multifamily originations this year and $486 billion for 2024.

Approximately $13.9 billion of the multifamily and health care property mortgages held by the government-sponsored enterprises or federal government agencies were expected at that time to mature this year.

Securing that new funding can be affected by declining property values and rising interest rates. Meanwhile, banks are being eyed for their exposure to commercial real estate.

"As loans mature and adjustable-rate loans reset, we should start to get greater insights into where things stand," Woodwell noted.

The multifamily origination index ended the first quarter at 299, compared with 536 in the fourth quarter and 655 one year ago. For the second quarter of 2020, right at the start of the pandemic related shutdowns, the index was 388.

The first quarter index for the entire commercial and multifamily market, at 142, was well below the fourth quarter's 247 and 323 one year ago, but only slightly below the 151 during the pandemic-affected second quarter of 2020.

The MBA released only index values, not dollar volumes.

The index value for Fannie Mae and Freddie Mac, which are the investors for a significant portion of multifamily lending, was 414 for the first quarter, 40% lower on a quarter-to-quarter basis from 693 and 14% year-over-year from 483.