According to Freddie Mac, multi-family mortgages could be between 20% and 40% this year. Where the origins ultimately fall into this broad spectrum depends on the economic recovery and how well the corona virus is contained, the government-funded agency said.
"The economic challenges of the COVID-19 pandemic will have a significant impact on the multi-family market in 2020," said Steve Guggenmos, vice president of multi-family research and modeling at Freddie Mac, in a press release.
"The industry has entered the current recession on a solid foundation and is well positioned to absorb the effects of the recession due to the significant growth in recent years," he added.
Freddie Mac estimated that multi-family mortgages of $ 374 billion had emerged in all investor types in 2019, and 2020 had started well before the spread of the coronavirus affected employment and residence.
Regardless, the Mortgage Bankers Association reported that $ 364.4 billion in multi-family lending was granted last year, up 7% from 2018 and a new all-time high.
"Last year's numbers indicated a robust and diverse multi-family loan environment, but conditions have changed with the outbreak of the COVID 19 pandemic. The greatest uncertainty is increased uncertainty," said Jamie Woodwell, vice president of commercial MBA's Real Estate Research, in a press release.
"Interest rates are now lower than a year ago, and the data doesn't show any significant changes in real estate income or values," added Woodwell. "Demand for low interest rate refinancing, particularly for government-backed loans, is unlikely to overcome a decline in sales transactions, which means multi-family borrowing and lending is likely to decrease this year."
According to the MBA, Freddie Mac and Fannie Mae together had a 38% share of the multi-family market last year. Other sources of finance for multi-family families include banks, life insurers, private activity bonds and commercial mortgage-backed securitization.
Freddie Mac's own business peaked in volume in early March.
This dropped in late March and April when the locks were in progress, but in June the volume was back above the level that Freddie Mac had seen earlier in the year.
However, this increase in the late second quarter should not be seen as a sign of optimism for the entire multi-family loan market.
"Our volume trends do not reflect general market trends because our role as a government-sponsored company is to provide liquidity, especially in times of market stress and because other market participants are excluded from this uncertainty," the report said.
In the worst case, the total volume of apartment buildings will decrease to $ 221 billion this year and another 5% to $ 210 billion in 2021, the company predicted. The downward scenario expected the U.S. economy to remain in recession throughout 2021.
Factors influencing the underwriting of multi-family loans include increasing vacancy rates and lower rents. The vacancy rate, which according to Freddie Mac was 4.4% in the first quarter, will increase by 200 to 250 basis points by the end of the year, according to GSE estimates. At the same time, rents, which were up 2.9% year over year in the first quarter, will fall between 1.2% and 1.7% in Freddie Mac's forecasts in the fourth quarter, according to Real Page.
As a result, the income of property owners is reduced between 3.3% and 4.2% year-on-year.
However, if unemployment is below 8% at year-end and real gross domestic product has dropped about 2%, Freddie Mac predicts a multi-family mortgage origin of $ 299 billion this year before recovering to $ 375 billion in 2021.