The latest Senior Loan Officer Opinion Survey from the Federal Reserve offers good news for business in general, reporting that terms and conditions for loans have continued to ease. The commercial real estate (CRE) sector, though, received no such love. Banks kept commercial real estate lending standards about unchanged on balance, it said. It wrote: Regarding the levels of standards on CRE loans, domestic banks, on balance, reported that the current levels of their standards on most major categories of these loans are at the relatively tighter ends of the ranges that have prevailed since 2005. Significant and moderate net...
Commercial Loans
Booming Economy Prompting Hawkish Fed Policy
June 13 the Fed raised its benchmark interest rate, the Fed Funds rate, by another ¼%. Two additional increases anticipated in Sept and Dec. The Fed’s overnight lending rate is now in a range of 1.75% to 2.00%. Citing stronger consumer spending, and a highly optimistic business community, the Fed laid out the potential for two additional rate hikes in 2018. The Fed noted strong job growth, accommodative fiscal policy and above-target inflation as reasons for continuing to normalize monetary policy over the coming months. Lending interest rates have increased in this rising rate climate. By and large, benchmark loan...
July 30, 2018November 22, 2020john
COMMERCIAL LENDING UPDATE
The FOMC raised the target federal funds by 25 bps earlier this month to a range of 1.75-2.00 %, and projected a third and fourth rate hike later this year, read that to be Sept and Dec. This sending the prime rate to 5%, and jacking up variable rate loans by ¼ point. The Fed cited increased retail sales, even excluding gas station fuel sales, and unemployment remaining below 4% as cautionary indicators of increasing inflation pressures – the May core CPI inflation was at 2.2%. And what was the credit markets response to this? Not much! This was...
June 30, 2018November 22, 2020john
COMMERCIAL LENDING UPDATE
Many experts have been more bullish in their approach to increases to the Federal Funds rate in 2018, forecasting a total of four rate hikes for the year. And after the administration passed tax reform at the end of last year, experts again forecasted an increase in the Federal Funds rate, saying it could cause the Fed to actually speed up rate hikes. Today however, Fed Funds futures are forecasting the chances of four rate hikes in 2018 at 37%, down from the previous 40%. This decrease in confidence for four rate hikes is due to minutes from the Federal...
May 30, 2018May 30, 2018john
COMMERCIAL LENDING UPDATE
The yield on the 10-yr U.S. Treasury spiked to 3.03% two weeks ago (4-25-18), breaking a decade long downtrend. This highlights a major problem (or achieving a solution if you’re the Fed) – inflation is back. As Bloomberg noted that morning, something even more foreboding is the move in short term rates, up, which according to them, is flashing a warning signal about the economy. The increase in the 2-yr rate to 2.49% is the highest yield since 2008, along with the 1-yr rate up to 2.25%, also the highest yield in a decade. Increases in the short end of...
May 8, 2018May 8, 2018john
COMMERCIAL LENDING UPDATE
New data and commentary from federal financial regulators are pointing to signs of increased risks in CRE lending. Notably, the amount of delinquent multifamily and owner-occupied property loans on the books of U.S. banks increased in the Q4-17 of last year, according to the FDIC. And while the increases and total volumes are small, the uptick marks a change in the trend after multifamily delinquency levels hit the lowest mark ever recorded by the FDIC. The FDIC data follows the Fed’s latest Monetary Policy Report that noted growing vulnerability in the commercial real estate sector. “Valuation pressures continue to be...
March 28, 2018March 28, 2018john
COMMERCIAL LOAN UPDATE
In the January 2018 Senior Loan Officer Opinion Survey (SLOOS), released by the Federal Reserve earlier this month, we received a snapshot of Q4 credit standards among businesses. This report focuses on supply side reporting of credit dynamics. While banks reportedly continued to ease standards on commercial and industrial (C&I) loans, demand for such loans has picked-up slightly after remaining weak for more than a year. Increased demand is likely attributable to the rise in business fixed investment, specifically the surge in capital spending in the second half of 2017. With equipment spending up 10.8 percent and 11.4 percent in...
March 1, 2018March 1, 2018john
FEDERAL RATE INCREASE: EFFECT ON COMMERCIAL LOANS
As expected, the Federal Reserve’s Open Market Committee (FOMC) raised the target range for the federal funds at the most recent Dec. meeting. The rate rose 25 bps to a 1.25-1.50% range, with the move the Fed has now hiked the Fed Funds rate 3 times this past year and five times since they started to raise the rate at the tail end of 2015. Monetary policy is seen as remaining accommodative and consistent with strong labor market conditions and a sustained return to 2% inflation. While the policy statement did not change materially, the forecast for real GDP growth...
December 29, 2017December 29, 2017john
COMMERCIAL REAL ESTATE LENDING UPDATE
By Michael Green Commercial real estate (CRE) lending increased for the 5th consecutive year in the U.S. finishing out a strong 4th quarter. The increase was spread across all types of lenders and property segments. About ½ of the closings were for acquisitions, significant in light of the bulge in refinances coming due in the 2015-2017 window. These are the 10-yr. term loans that were originated in 2005-2007 at the top of the last CRE cycle. Retail, hotel and specialty properties saw the biggest increases reflecting buyer demand in these sectors. Specialty properties which are typically single-tenant occupied have come...
April 15, 2015April 15, 2015john