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CRE Finance World, Summer 2013

A publication of Summer issue 2013 sponsored by CRE Finance World Summer 2013 57 Borrowing is also picking up. According to the Mortgage Bankers Association, $109 billion in multifamily mortgages was originated in 2011. This marked the second consecutive year of gains in multifamily mortgage originations. The numbers for 2012 are not in yet, but the MBA multifamily originations index for 2012 indicates a 24% gain from 2011. The value of outstanding mortgages is rising again, albeit slowly (see Chart 13). Greater caution among lenders is partially behind the low volume of originations, which as of 2011 remained 17% below that of 2005. Chart 13 Mortgage Originations Recover Sources: Federal Reserve Board Flow of Funds, Moody’s Analytics The easy credit extended to borrowers earlier this decade resulted in a deterioration of credit quality, particularly for loans financed by commercial mortgage-backed securities. The Moody’s Investors Service Delinquency Tracker for multifamily properties in CMBS pools indicates that the delinquency rate deteriorated more than the single-family mortgage delinquency rate but not more than the delinquency rate for conventional subprime mortgage loans (see Chart 14).4 The delinquency rate for CMBS loans surged from less than 1% in 2006 to nearly 16% in the beginning of 2011. Moreover, single-family mortgage delinquency rates have been improving since their peak in 2009, but the CMBS delinquency rate has fallen just slightly. Chart 14 Apartment Delinquencies Are High Sources: Mortgage Bankers Association, MIS, Moody’s Analytics That delinquency rates for privately securitized loans are still high raises concerns about the outlook for these loans. Increasingly, apartment loans have maturity dates of five to 10 years. These borrowers will be hard pressed to refinance their loans. Indeed, even loans that are current, but were underwritten using more liberal qualifying standards that prevailed when they were originated, may face difficulties finding refinancing. These trends pose downside risk to an otherwise bright outlook. Multifamily Outlook The economy is on the mend and rental markets are benefiting. The expanding economy is generating increased demand for housing overall and demand for rental units in particular. Stronger household gains will help rental markets grow. Falling rental vacancy rates and rising rents will entice investors back into the market. As such, multifamily construction will increase, mortgage origination volumes will accelerate, and growth in mortgage outstandings will pick up over the next several years. Longer term, measures of the housing market will return to a trend rate of growth that is consistent with household formations. Financing for both owned homes and apartment buildings will slowly improve, although credit standards will remain more stringent than those imposed during the housing boom. Housing tenure choice will be related to demographic trends, with the high and growing share of older households driving up homeownership. Though the homeownership rate will rise again, the number of renter households will grow because of the growth in the total number of households. Multifamily Housing: On a Path of Solid Growth


CRE Finance World, Summer 2013
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