Demand for all types of residential mortgages was weaker, while lending standards for most were essentially unchanged1 in the second quarter of 2026, according to the recent release of the Senior Loan Officer Opinion Survey (SLOOS). For commercial real estate (CRE) loans, lending standards for construction & development were essentially unchanged, while becoming easier for multifamily loans. Compared to the previous quarter, demand for construction & development loans was weaker, while essentially unchanged for multifamily loans.
The Federal Reserve kept its key short-term interest rate (i.e., Fed Funds) unchanged for the fifth consecutive meeting at a target range of 3.50% to 3.75%. However, there were three dissenting votes which is the most since September 2016. The dissenters advocated for a rate hike due to inflation continuing to run above their 2% target for more than five years. The longer the Fed Funds rate remains elevated, the more detrimental it will be to the building industry since it has a direct impact on the prime rate of acquisition, development and construction (AD&C) loans. AD&C financing is key for private builders who build more than 60% of single-family homes. Lower rates and easier access to financing will help builders build more, reducing the national housing shortage. NAHB is forecasting no changes to the Fed Funds rate until the middle of 2027.
Residential Mortgages
In the second quarter of 2026, three of seven residential mortgage loan categories: Qualified Mortgage (QM) jumbo, Non-QM jumbo, and QM non jumbo non-GSE-eligible; saw a positive2 net easing index for lending conditions. An additional three (Government, GSE-eligible, and non-QM non-jumbo) recording a neutral reading (i.e., near 0). Subprime loans continued to experience tighter lending conditions for the fourth consecutive month, as evidenced by a negative value of -9.1.
All seven residential mortgage loan categories reported at least modestly weaker demand in the second quarter of 2026, with five having a net percentage below -10%. The average (-12.1) across all seven residential mortgage categories is the lowest since Q2 2025 (-13.1).
Commercial Real Estate (CRE) Loans
For the CRE loan categories, a net easing index of +5.7 and +3.7 was registered for multifamily and construction & development loans, respectively, in the second quarter of 2026. This is the first time where both CRE loan categories have had a positive reading in 18 quarters (Q4 2021).
The net percentage of banks reporting stronger demand was -11.1% for construction & development loans, with a negative number indicating weaker demand. This is the second straight quarter of weaker demand for this category. For multifamily loans, demand was -3.8% in the second quarter of 2026, which is essentially unchanged according to the Fed’s classification scheme, as it has been for seven consecutive quarters.
- The Federal Reserve uses the following descriptors when analyzing results from the survey which will be used, in principle, within this blog post as well:
– “Remained basically unchanged” means that the change or actual reading is greater than or equal to 0 and less than or equal to 5 percent.
– “Modest” means that the change or actual reading is greater than 5 and less than or equal to 10 percent.
– “Moderate” means that the change or actual reading is greater than 10 and less than or equal to 20 percent.
– “Significant” means that the change or actual reading is greater than 20 and less than or equal to 50 percent.
– “Major” means that the change or actual reading is greater than or equal to 50 percent.
- A value above zero (i.e., positive) indicates that lending conditions are easing while a value below zero (i.e., negative) indicates that lending conditions are tightening.