MBA Bullish on Economic Growth

The Mortgage Bankers Association issued positive assessments of the economy, job creation and financing activity during the annual MBA Commercial Real Estate Finance/Multifamily Housing Convention & Expo.

February 10, 2011
By Keat Foong, Executive Editor, Multi-Housing News

SAN DIEGO – The Mortgage Bankers Association issued positive assessments of the economy, job creation and financing activity during the annual MBA Commercial Real Estate Finance/Multifamily Housing Convention & Expo held here.

GDP growth for 2010 will be nearly 4 percent, predicts Jay Brinkman, MBA chief economist. Brinkman and other MBA officials were speaking at a press conference that was held during the convention. “Economic growth is looking pretty good,” he says. There is a chance the increase in GDP will be even higher than projected.

Brinkman says all economic indicators appear to be pointing in a positive direction. Consumer spending has picked up, and business spending is also increasing. While construction levels are extremely low, they are bouncing off the bottom. The reduction in the social security payroll tax as well as the extension of the tax cuts may also stimulate the economy.

MBA forecasts that jobs will be created at the rate of about 150,000 per month in 2011. This level is the amount commonly said to be required to match the number of new entrants into the workforce. MBA forecasts that in total more than 1.5 million jobs will be created this year, compared to a projected increase of 1.3 million-plus jobs in 2010.

Hiring in the manufacturing sector has ticked up a little, and the service sector has seen across-the-board increases in employment. Employment in has increased, as the hospitality industry has regained all the jobs it lost, says Brinkman.

Brinkman predicts that interest rates will climb only gradually this year. Interest rates will increase at a faster clip only if there is a perception that U.S. is not that different from Europe in its debt situation, if a booming stock market will lessen investor interest in the fixed-income market, or if circumstances prompt another round of investor flight to quality.

Jamie Woodwell, MBA vice president, commercial real estate research, says that commercial real estate has “clearly” arrived at another real estate cycle. Woodwell says net absorption will exceed completions in many sectors this year, and job growth will begin to reduce excess space. NOI will begin to be impacted as rents are adjusted up.

“We are already seeing that [occur] in sectors with shorter lease terms” such as hotels and apartments, he says.

MBA announces that mortgage bankers originated $110 billion of commercial and multifamily mortgages during 2010 an increase of 36 percent from 2009 according to preliminary estimates.

There was a big “ramp up” of financing in the fourth quarter, says Woodwell. Financing increased by 88 percent in the fourth quarter of 2010 compared to the same period a year ago, and by 63 percent compared to the third quarter.

The sharp fourth quarter increase was driven by office and hotel originations, which increased by 170 percent and 169 percent respectively compared to a year ago. Multifamily financing increased in the fourth quarter by 81 percent from a year ago.

Life companies pushed up their originations by a hefty 170 percent in 2010 compared to 2009. Fannie Mae and Freddie Mac originations increased by 65 percent. Loans originated for commercial bank portfolios declined by 25 percent, and CMBS loans increased by 6,000 percent compared to a year ago. CMBS financing is starting to get a little more traction, although the volume remains relatively low, says Woodwell.

Life companies, Fannie Mae and Freddie Mac have seen relatively low loan delinquency rates compared to the 1980s and 1990s, Woodwell notes. Although CMBS delinquencies are on the upswing, there is a balance between properties entering and exiting workouts, says Woodwell.
MBA’s analysis of loan maturities show maturities exceeding $150 billion this year, and falling every year thereafter until 2015 to 2017, when it will increase again to levels of between $150 billion to $200 billion. Higher loan maturities in those three years reflect the boom of financings executed between 2005 and 2007, says Woodwell, as well as loan extensions during these few years.

Brinkman says downside risks to the economy include the budget deficits of state and local governments. He says expirations of the federal stimulus and QE2 this year could possibly present a small, though not serious, negative effect on the economy.