Commercial real estate loans appear to be decreasing once again. The Mortgage Bankers Association reports that such loans dropped 4% nationwide during the summer months when compared to the same time period last year. The decline represented a 30% drop since the second quarter of 2007.

Why the decline? A number of factors may be in play here. To begin with, it appears that there were declines in originations for most kinds of property. The most staggering decline was in loans for office properties—such loans declined more than 30%. Meanwhile, retail property loans declined 20%, while hotel property loans dropped 18%. Industrial property loans declined some 8%.

However, in other sectors, commercial loans actually increased. For instance, loans for health care properties skyrocketed a whopping 149%. Also, multifamily property mortgages edged up 14%.
As far as investments were concerned, it appears that commercial bank portfolios declined nearly 20%. However, loans for life insurance companies actually rose 11%. Meanwhile, the dollar volume of loans for Fannie Mae and Freddie Mac, which are also known as government-sponsored enterprises, saw no change.

On the residential end of the equation, the U.S. is witnessing its worst housing slump in some 16 years. Home prices have plummeted; many sellers are finding difficulty finding buyers; and many prospective buyers have been stymied by new, stricter mortgage standards.

In addition, foreclosures are on the rise—a situation which shows no signs of abating. The crisis could, in fact, worsen in the months ahead, as a number of adjustable rate mortgages re-adjust to higher interest rates. Some homeowners could see a rise in their monthly mortgage payments of as much as $300. In reaction, a number of members of Congress are calling on quick action to help forestall the impending crisis.

Fears have also increased that the housing slump could lead to a full recession. So far, however, the housing crisis has not had a significant impact on the economy as a whole.

Posted by Zoov on 14 Jun 2008 08:06 am
Filed Under: Business |