Demand for CRE Loans Increases in Q3

Banks reported a mixed bag in Q3 2015.

Every quarter the Federal Reserve publishes a survey of bankers regarding lending standards and demand for loans, including (but not only) commercial real estate loans. The latest report is out, this time surveying 69 domestic banks and 23 U.S. branches and agencies of foreign banks. In previous reports—going back some years now to the end of the recession—the pattern has been fairly clear: terms for loans to businesses and for real estate purposes have slowly eased, though no one calls them as easy as the days of the mid-2000s, when a main purpose was to make the loans and get them bundled up for sale as quickly as possible. As for loans to consumers, they’ve only be easing more recently, and only in certain categories.

The latest report noted that that pattern hasn’t fundamentally changed. Regarding loans to businesses, the October survey results indicated that banks reported a mixed bag in Q3 2015. Banks reported having eased some loan terms, such as spreads and loan maturities, but they also said that they increased premiums charged on riskier loans for larger firms.

Regarding CRE lending, the survey respondents reported that standards on loans secured by nonresidential properties, multifamily residential properties and construction and land development loans remained roughly unchanged. On the demand side, banks on the whole reported that demand for commercial loans was also unchanged, but some survey respondents experienced stronger demand for all three categories of CRE loans during the third quarter—possibly because of an anticipated interest rate increase. That didn’t happen, of course, but it was a real possibility during the third quarter, and it might have advanced the timetable of some deals.

As for loans to households, banks reported easing lending standards on mortgages eligible for purchase by the GSEs over the past three months. Some banks have also eased standards for credit card loans and for auto loans. On the demand side, a small majority of banks reported weaker demand across most categories of home-purchase loans—probably a sign of the continued lethargy in the housing market, since mortgage rates are still so low. By contrast, respondents said they’re experiencing stronger demand for credit card loans. It might still be relatively hard to qualify for a mortgage, but credit for small-item consumer spending is improving as employment grows.