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MBA CREF Forecast Scenarios

By Jamie Woodwell; Reggie Booker
September 10, 2019

Topics:
Forecast
Originations

Forecast Scenario CMF

Forecast Scenario MF

MBA's commercial real estate finance (CREF) forecast (click here for the latest) is built on a "base case" that is consistent with MBA's macroeconomic forecast (click here for the latest). That base case is one of myriad potential paths the US economy and commercial real estate markets could follow. To help illustrate that point, the charts above display possible paths for commercial/multifamily mortgage bankers' originations and multifamily lending across four selected economic scenarios.

In one scenario (red), base interest rates rise while the spread between those rates and property capitalization (cap) rates remains flat. In this case, forecast originations would remain relatively steady between 2018 and 2020. Another scenario (green) envisions a mild recession in which interest rates dip, cap rate spreads rise and property net operating incomes flatten. Here, origination volumes would tend to fall by 10-13 percent. In a third scenario (purple), interest rates fall further and investor demand pushes property cap rate spreads even tighter. Here, originations could rise dramatically, perhaps by as much as 40 percent between 2018 and 2020.

MBA's base case forecast (blue) envisions stable long-term interest rates and relatively stable cap rate spreads - among other things - and forecasts a modest rise in originations in coming years.

Given the current economic uncertainty, it's fair to assume that different paths for the US economy could lead to very different outcomes for commercial and multifamily mortgage demand and supply.

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