Economy Watch: Lending Standards for CRE Tighten in 3Q

A tighter lending environment in the third quarter was coupled with growing demand for construction and land development loans.
Janet Yellen, Chair of the Board of Governors of the Federal Reserve System

Janet Yellen, Chair of the Board of Governors of the Federal Reserve System

On the whole, banks tightened their standards on commercial real estate loans during the third quarter of 2016. That’s according to the the October 2016 Senior Loan Officer Opinion Survey on Bank Lending Practices, which was released by the Federal Reserve on Monday. Perhaps it’s an indication that lenders are a bit worried that there’s too much commercial property development, at least in some markets.

Domestic survey respondents, on the whole, said that their lending standards for all types of CRE loans tightened during the third quarter. In particular, a moderate majority of banks reported tightening standards for loans secured by nonresidential properties, while a significant number of banks reported tightening standards for construction and land development loans, as well as loans secured by multifamily residential properties.

The demand for CRE loans is still growing, however, according to respondents, who reported stronger demand for construction and land development loans. Demand for loans secured by multifamily residential and nonresidential properties remained basically unchanged.

Regarding loans to households, some banks reported easing standards on loans eligible for purchase by the GSEs, while others reported easing standards on loans categorized as QM jumbo and QM non-jumbo, non-GSE-eligible residential mortgages. The remaining categories of home-purchase loans were little changed. Banks also reported that demand for most types of mortgages strengthened over the third quarter.