Downward angle icon Downward angle icon. High-rise public housing is a dominant feature of Singapore's skyline. TILT Photography/Getty Images Commercial mortgage borrowing is set to grow 29% this year, according to estimates from the Mortgage Bankers Association. That's still below levels seen since 2017, and last year was on track to be the biggest slowdown in a decade. Federal Reserve rate cuts will be key to a borrowing recovery, but a prolonged high-interest-rate policy will likely restrain activity.
Commercial and multifamily mortgage borrowing and lending is expected to increase 29% from last year's estimated total of $444 billion, according to estimates from the Mortgage Bankers Association.
Projected trade volume is expected to rise to $576 billion in 2024, but the figure is still below levels seen since 2017.
“2023 is likely to go down in history as the weakest year in the past decade for commercial real estate borrowing and lending,” Jamie Woodwell, head of commercial real estate research at the MBA, said in the report.
Analysts said the ongoing economic slowdown reflects uncertainty about the current direction of U.S. monetary policy, with markets divided over when the Federal Reserve will start cutting interest rates.
Tighter monetary policy from 2022 onwards is driving up borrowing costs across the commercial real estate market and leading mortgage lenders to tighten lending standards. This is weighing on the outlook for industry participants, who fear higher borrowing costs will make it much harder to refinance loans, leading to a wave of forced sales.
With $2.2 trillion in debt maturing through 2027, Capital Economics expects a wave of defaults to roil markets, causing a peak-to-trough decline of as much as 20%.
“We expect signs of distress to intensify this year as loan extensions expire, forcing many borrowers to either inject fresh capital, return assets to lenders or sell in a soft market,” the firm's Kiran Raichura wrote on Monday.
In the MBA report, Woodwell noted that commercial mortgage lending has historically been tied to real estate prices, meaning that prices can rise if interest rates and cap rates fall. The IMF said in a report this week that U.S. commercial real estate prices have fallen more than 11% since the Fed's first rate hike.
But others expect an even steeper decline to come: Raichura sees prices falling another 10% this year, and the NBER's December forecast said total commercial real estate losses could reach $160 billion.
Woodwell said if monetary policy keeps interest rates high for a long period of time, mortgage trading will be further suppressed.