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ORLANDO, FLA. — The Mortgage Bankers Association (MBA) projects that originations of commercial and multifamily mortgages will grow to $300 billion in 2014, up from $280 billion in 2013, a 7 percent increase.

The combination of relatively low interest rates (the 10-year Treasury yield stood at 2.72 percent at the close of business on Mon., Feb. 10), improving property fundamentals, a rebound in property prices and higher loan maturity volumes is expected to drive the increase in loan originations this year, says Jamie Woodwell, vice president of commercial real estate research for the Washington, D.C.-based MBA.

The forecast was unveiled Monday afternoon at a press conference during the MBA’s Commercial Real Estate Finance/Multifamily Housing Conference & Expo. Joining Woodwell for the presentation was Michael Fratantoni, chief economist for the MBA, who offered a “cautious outlook” for the U.S. economy during the next year. More than 2,800 industry professionals are attending the conference, the most since 2007 and about 250 more than a year ago, according to MBA.

The annual convention, which provides a networking opportunity for lenders, financial intermediaries and borrowers, also features panel discussions on timely topics such as trends in healthcare lending, the rejuvenated CMBS market and the impact of changing demographics on the office and retail property sectors. The conference runs through Wednesday morning.


Source: Mortgage Bankers Association (figures are projected for 2014-2016)

MBA projects that loan originations will climb to $318 billion in 2015 and $333 billion in 2016, continuing an ascent that began in 2010 following the end of the Great Recession. Still, those loan origination totals pale in comparison to the $508 billion in originations notched in 2007, a record-breaking year.

In 2013, commercial/multifamily loan originations totaled $280 billion, up 15 percent from the prior year. Life companies originated $63 billion in mortgages during 2013, “a record volume” for that lending segment, says Woodwell. Government-sponsored entities Fannie Mae and Freddie Mac, along with FHA, accounted for $70 billion in mortgage originations in 2013, their second-best year ever.

Meanwhile, the once moribund CMBS market accounted for $86 billion of originations in 2013. “The $86 billion in CMBS issuance is clearly nowhere near the $230 billion that we saw in 2007, but well up from essentially the zero [issuance] that we saw in 2009,” Woodwell remarked during the press conference. “There is a lot of interest and appetite out there among commercial/multifamily lenders.”

The pie of commercial/multifamily mortgage debt outstanding is expected to continue growing in 2014, ending the year at nearly $2.6 trillion, more than 3 percent higher than at the end of 2013. By the end of 2016, the MBA projects that mortgage debt outstanding will approach $2.7 trillion.

Fratantoni, the MBA’s chief economist, explained that his cautious outlook stemmed from to several key indicators, including weak job growth in December 2013. Nonfarm payroll employment grew by 74,000 that month, well below expectations.

The Institute for Supply Management (ISM) announced Monday that its index of U.S. factory activity fell from a revised 56.5 in December to 51.3 in January, another cause for concern, said Fratantoni. A reading above 50 indicates expansion, but the 51.3 reading was considered tepid. The Dow Jones Industrial Average fell by 326 points, or about 2 percent, on Monday in part because of the disappointing ISM reading.

Additionally, the MBA’s own data shows a “worryingly weak single-family home market,” according to Fratantoni. U.S. mortgage applications for the purchase of single-family homes have dropped 15 percent compared with the same period a year ago.

“That runs counter to what we would have told you last year. We thought that 2014 was going to be 10 percent better than 2013,” said the economist during the press luncheon.

Rising interest rates over the course of the past year likely triggered a pullback in the pace of mortgage applications, at least temporarily. “We had a 3.5 percent mortgage rate last year. We’re at 4.5 percent now. I think some people went ahead and bought last year, expecting that rates were going to rise. That pulled forward some sales that would have more naturally occurred this year,” said Fratantoni.

There are some signs of strength in the U.S. economy as well, pointed out Fratantoni. GDP growth beat expectations in the third and fourth quarters of 2013, rising 4.1 and 3.2 percent, respectively. However, some of that growth was due to anomalies.

For example, approximately 1.7 percent of the 4.1 percent GDP growth during the third quarter stemmed from business inventories. In the fourth quarter, 1.3 percent of the 3.2 percent increase in GDP came from trade.

“I think that is not going to persist through time,” emphasized Fratantoni. “That more underlying pace of 2 percent to 2.5 percent [growth] is where we are stuck right now.”

MBA projects the current unemployment rate of 6.7 percent to drop to 6.5 percent by the end of 2014.

— Matt Valley

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