Demand Weaker, Lending Conditions Tighter in First Quarter

According to the Federal Reserve Board’s April 2024 Senior Loan Officer Opinion Survey (SLOOS), lending standards tightened for all commercial real estate (CRE) loan categories and most residential real estate (RRE) categories in the first quarter of 2024.  With the Federal Reserve leaving their federal funds rate unchanged during their last meeting, demand for RRE and CRE loans remains weaker across all categories in the quarter even though the worsening of conditions is not as widespread as it was the previous quarter.

Residential Real Estate (RRE)

For all but two of the seven RRE categories, a net share of banks reported tighter lending standards in Q1 2024.  GSE-eligible saw more banks reporting looser rather than tighter conditions, as evident by a negative reading (-1.8%) and government loans (i.e., issued by FHFA, Department of Veteran Affairs, USDA, etc.) saw a neutral reading where the number of banks reporting tighter and those reporting looser lending conditions was the same (0%). 

Previously, all seven categories of RRE loans showed net tightening in Q4 2023.  For the five categories that showed further net tightening in Q1 2024, the net tightening was not as severe as it was in Q4 2023.  For the second consecutive quarter, the largest drop in the net tightening percentage occurred for Qualified Mortgage (QM) jumbo which fell 11.8 percentage points (pp) from 15.4% in Q4 2023 to 3.6% in Q1 2024.

All RRE categories reported net weaker demand in Q1 2024.  The survey has shown that banks have indicated weaker demand for at least 11 consecutive quarters for all RRE categories going back to Q2 2021 (Subprime leads all RRE categories at 15 consecutive quarters).

Commercial Real Estate (CRE)

Banks reported net tighter lending conditions for both multifamily as well as all CRE construction & development loans in Q1 2024.  Nevertheless, both categories showed less net tightening than they did a quarter earlier.  It has been 9 consecutive quarters of tighter lending conditions construction & development and 8 consecutive quarters for multifamily.

About a third of banks reported net weakening of demand for loans secured by multifamily properties compared to 16.7% for construction & development loans.  Weaker demand has persisted for roughly the last two years for construction & development (9 consecutive quarters) and multifamily (7 consecutive quarters).

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