Commercial Mortgage Originators Bullish on 2018

Originators anticipate that 2018 will be another strong year for commercial mortgages, according to the Mortgage Bankers Association’s CREF Outlook Survey.

In fact, 78% of the top commercial firms expect originations to increase in 2018, with 22% expecting an overall increase of 5% or more across the entire market. When forecasting just their own firm’s originations, almost half (47%) expect to see an increase of 5% or more in 2018.

“Mortgage bankers look to 2018 as another growth year for the commercial and multifamily mortgage markets,” says Jamie Woodwell, MBA’s vice president for research and economics. “The majority of top firms expect a ‘very strong’ appetite from lenders and a ‘strong’ appetite from borrowers to drive commercial mortgage originations higher.

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

Overall, lenders remain eager to make loans: 100% of originators reported that in 2017, lenders had a “strong” or “very strong” appetite to make new loans, and 93% expect lenders’ 2018 appetite to be “strong” or “very strong,” with 59% expecting “very strong” appetite and 33% expecting strong appetite.

Also, borrowers are eager to take out loans: 93% of originators reported that in 2017, borrowers had a “strong” or “very strong” appetite to take out new loans, and 74% expect borrowers’ 2018 appetite to be “strong” or “very strong,” with 59% expecting “strong” appetite and 15% expecting “very strong appetite.

There is 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% anticipate growth of greater than 5%), life insurance companies/pensions (12% anticipate growth of greater than 5%), bank portfolios (12% anticipate growth of greater than 5%), FHA (17% anticipate growth of greater than 5%) and Fannie Mae and Freddie Mac (24% anticipate growth of greater than > 5%).

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.

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