MBA: CRE Originators Expect ‘Strong’ 2018

Commercial and multifamily mortgage originators expect another strong year according to the Mortgage Bankers Association’s 2018 CREF Outlook Survey.

Nearly four in five (78 percent) of top commercial/multifamily firms expect originations to increase in 2018, with nearly one-fourth (22 percent) expecting an overall increase of 5 percent or more across the entire market. When forecasting just their own firm’s originations, nearly half (47 percent) expect to see an increase of 5 percent or more in 2018.

“Mortgage bankers look to 2018 as another growth year for the commercial and multifamily mortgage markets,” said MBA Vice President for Research and Economics Jamie Woodwell. “The majority of top firms expect a ‘very strong’ appetite from lenders and a ‘strong’ appetite from borrowers to drive commercial mortgage originations higher.”

Woodwell said tax reform and regulatory relief are expected to benefit the overall market, “though rising rates are expected to be a drag. The outlook mirrors much of what we saw in their 2017 outlook.”

Other takeaways from the 2018 survey:

–Lenders remain eager to make loans. All respondents reported in 2017 lenders had a “strong” or “very strong” appetite to make new loans and 93 percent expect lenders’ 2018 appetite to be “strong” or “very strong,” with 59 percent expecting “very strong” appetite and 33 percent expecting strong appetite.

–Borrowers are eager to take out loans. Ninety-three percent of originators reported in 2017 borrowers had a “strong” or “very strong” appetite to take out new loans and 74 percent expect borrowers’ 2018 appetite to be “strong” or “very strong,” with 59 percent expecting “strong” appetite and 15 percent expecting “very strong appetite.

–A full 100 percent of originators reported in 2017 their own firm had a “strong” or “very strong” appetite to make new loans. A lower share (89 percent) expect their own firm’s 2018 appetite to be “strong” or “very strong.”

–Most originators expect the market to grow in 2018 (and their own firms to grow more quickly). Nearly one-fourth of respondents (22 percent) expect total market originations to increase 5 percent or more in 2018. Nearly half (47 percent) expect their own originations to increase by 5 percent or more.

–The survey reported a wide range of opinions about how origination volumes for specific capital sources will change in 2018. Originations are generally expected to be flat or increase for commercial mortgage-backed securities (23 percent anticipate growth > 5%), life insurance companies/pensions (12 percent anticipate growth > 5%), bank portfolios (12 percent anticipate growth > 5%), FHA (17 percent anticipate growth > 5%) and Fannie Mae and Freddie Mac (24 percent anticipate growth > 5%).

–Loan returns and risks are both expected to increase slightly in 2018.

–Majorities of originators expect 10-year Treasury rates, office capitalization rates and retail cap rates to rise, and for apartment cap rates and industrial cap rates to remain flat.

–Majorities also expect short-term interest rates and long-term interest rates to have potentially negative impacts on the markets, and for regulatory relief and tax reform to have potentially positive impacts. Majorities expect new construction activity and GSE reform to have little potential impact.

The 2018 MBA CREF Outlook Survey took place between November 28 and December 22, 2017. The survey request was sent to leaders of 60 of the top commercial/multifamily mortgage origination firms, as determined by MBA’s 2017 Annual Origination Rankings Report. The survey had a response rate of 50 percent. Percentages shown are calculated based on applicable responses. Non-responses and “n.a.” responses are excluded from the percentage denominator.

Detailed survey results are available to members of the Mortgage Bankers Association at www.mba.org/crefresearch.