Third-quarter originations for multifamily properties declined 16% from the second quarter, as interest rates moved up and government housing agencies put the brakes on capital to the multifamily side of the market, mortgage industry data shows.
The Mortgage Bankers Association put out its third-quarter 2013 commercial and multifamily mortgage originations report Friday, showing originations remaining mostly flat from the second quarter.
Year-over-year, most of the data showed solid improvement.
The MBA showed a 29% rise in commercial/multifamily lending volumes year-over-year in 3Q, while multifamily volume edged up 3% from last year.
But a definite shift occurred in the multifamily sector mid-year, market observers say.
"There were a couple of things happening in Q2 that led to a decrease in (multifamily activity) in Q3," said Walker & Dunlop Chairman and CEO Willy Walker.
Walker & Dunlop is a well-known multifamily lender. The firm's CEO has been open about discussing how a decline in government support for multifamily changed the course of the year somewhat. Yet, he acknowledges several factors led to the transition.
"The first was interest rates moving up,” Walker told HousingWire. "The market froze to see where rates were going to end up," he recalls, when discusing all the summer turmoil created by uncertainty over whether the Fed would taper its mortgage-backed securities purchases. "And then, Fannie Mae and Freddie Mac put their foot on the brakes, along with the supply of capital," he explained.
Walker cites a key point from the MBA's commercial originations update.
When looking at investors in commercial/multifamily, the MBA noted that the dollar volume of loans originated for conduits for CMBS grew by 105% from year ago levels, while life insurance company investments grew 72%. But there was a 40% decrease in the dollar volume of loans originated for Fannie Mae and Freddie Mac.
Walker says with the housing agencies pulling back and interest rates rising, it’s not a surprise there was a fall-off in multifamily activity from the second to third quarter. One of the biggest decisions FHFA Acting Director Ed DeMarco made in the FHFA’s 2013 scorecard was a 10% cutback in multifamily business volume at the GSEs.
Walker has already adjusted his yearly forecast to reflect all of 2013's unexpected headwinds.
"We came out of 2012 with Walker & Dunlop and CWCapital having done a combined $9.5 billion in financing (volume) in 2012," Walker said. His firm looked at 2013, thinking the healthy market could produce a $10 to $12 billion volume.
However, that guidance was eventually readjusted after rates rose, Fed uncertainty hit the market and the housing agencies pulled back a bit. The firm’s 2013 forecast has now been lowered a bit to $9 to $11 billion.
