🏢 Challenges Persist as Commercial Mortgage Lending Plummets in 2023

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Challenges persist as commercial mortgage lending plummets in 2023; Cincinnati’s rent surge: Midwest cities lead national trends; soaring costs and limited choices for prospective homeowners. Let’s delve into today’s topics.

📈 Market Update

🏢 Challenges Persist as Commercial Mortgage Lending Plummets in 2023

The Mortgage Bankers Association (MBA) forecasts a substantial 46% decline in total commercial mortgage borrowing and lending for 2023. Commercial and multifamily lending are anticipated to reach approximately $442 billion, nearly half of the previous year's total. Delinquency rates for commercial real estate loans have surged for four consecutive quarters, reaching 2.7% by the end of September 2023. Various factors, including uncertainties surrounding supply and demand dynamics, interest rate volatility, and limited transactions, have contributed to a significant drop in demand for new mortgages.

🔍️ The Outlook: 
Despite the current downturn, the MBA’s preliminary forecast for the following year hints at a potential recovery. The association anticipates a modest increase in total commercial real estate lending in 2024, reaching $559 billion, with a substantial portion allocated to multifamily lending, projected at $339 billion. Addressing the rising delinquency rates, the industry is working through uncertainties about property fundamentals, particularly evident in office properties, where delinquency rates have exceeded those of retail and hotel properties. While challenges persist, the possibility of a future boost in values and a reduction in risk through lower interest rates offers a glimmer of hope for the commercial real estate market in the upcoming year

📈 Cincinnati's Rent Surge: Midwest Cities Lead National Trends

In the dynamic landscape of the Midwest's real estate market, Cincinnati has emerged as a beacon of growth, showcasing a remarkable 3.4% increase in rents during the third quarter of 2023. This surge can be attributed to various factors, including affordability, balanced population growth, and controlled completions when compared to other high-growth regions. Despite an accelerated pace of construction with over 3,500 units completed, Cincinnati's vacancy rate only rose to 5.8%, well below the national average of 7%. Notably, areas like Northwest Cincinnati and Northern Kentucky have outperformed the market, with their strategic positioning and supply dynamics fostering healthy rent growth rates of 5.7% and 4.2% respectively. This steady growth paints Cincinnati as a prime investment hub, positioning it as a key player in the commercial real estate landscape of the Midwest.

🏘️ Soaring Costs and Limited Choices for Prospective Homeowners

The struggle to enter the property market intensifies as the cost disparity between buying and renting homes reaches unprecedented levels. The average monthly new mortgage payment in the U.S. is now a staggering 52% higher than renting an apartment, marking the most significant gap since 1996. Rising house prices and surging debt costs have made homeownership increasingly unattainable for first-time buyers, with a 30-year mortgage now demanding approximately $3,200 in monthly repayments for a $430,000 home. The soaring prices not only hinder aspiring homeowners from accumulating a 10% down payment but also pose challenges for landlords, creating a complex landscape where potential solutions seem elusive.

↪️ Economic Headwinds and Supply Constraints Loom:
Goldman Sachs predicts a more modest 1.3% increase in home prices in December 2024, compared to the 3.4% gain expected in 2023. This change is due to higher borrowing costs and the prospect of elevated mortgage rates. The reluctance of homeowners to list their properties is also limiting inventory, further impacting sales of previously owned homes, which are expected to fall to their lowest level since the early 1990s at 3.8 million in 2024. Housing starts are forecasted to decline by nearly 4% in 2024. The U.S. housing market faces headwinds from higher interest rates, reduced supply, and a potentially challenging economic environment in the coming year.

✍️ Further Reading

• Adler’s €6 Billion Debt Deal Scrutinized by UK Appeals Court (BBG)

• Food Halls, a Hot Real-Estate Investment, Conquer the Suburbs (WSJ)

• Looking To Refinance, Brookfield Secures Extension for $180 Million Loan on San Francisco Mall (CS)

• Florida Resorts Land $1.1 Billion in Refinancings, Five-Year Loans on the Rise, Lender Takes New York Office Building (CS)

• What Apartment Rent Growth Will Look Like in 2024 According to One Economist (GS)

• StoryBuilt’s Biggest Partner Fires Back at Receiver’s Sale (RD)

📊 Chart of The Day