The Mortgage Bankers Association (MBA) projects that 2020 will bring another all-time high for mortgage originations. One area of opportunity, in particular, is commercial real estate (CRE), which is projected to reach a record high at $700 billion in 2020.
With 2020 around the corner, there are a variety of factors that will play into whether transactional volume will increase.
Commercial Real Estate Forecasts for 2020
Here’s a look at how commercial real estate has performed in 2018, 2019, and where growth is heading in 2020:
|Year||CRE & Multifamily Loan Assets|
|2020 Projection||$700 billion|
What’s driving this increase in CRE loans?
According to Jamie Woodwell, MBA vice president for commercial real estate research, “The low interest rate environment, coupled with continuously strong demand for commercial and multifamily assets, has pushed property values higher and increased demand for mortgages.”
“The 10-year Treasury yield is at approximately 1.5%, and many market participants are planning for rates to remain ‘lower for longer.’ The result is heightened demand and higher volumes,” Woodwell said.
As low interest rates carry such weight in mortgage originations, the next question is whether to expect rates to stay low. According to Mike Fratantoni, MBA’s Chief Economist and Senior Vice President for Research and Industry Technology, interest rates are likely to stay low.
“Interest rates will, on average, remain lower for longer given the somewhat cloudy economic outlook. Fratantoni said. “These lower rates will, in turn, support both purchase and refinance origination volume in 2020.”
As economic uncertainty keeps interest rates down, it’s a reasonable expectation for continued transactional growth. MBA released this statement on October 29, 2019, stating that “purchase originations are expected to increase 1.6 percent to $1.29 trillion in 2020.”
While an increase in purchases is a positive sign for title and escrow companies, 2020 doesn’t come without some questions.
Would a Recession Impact CRE Volume?
Right now, there are no tell-tale signs that a recession is coming, at least not compared to historical predictors such as the bubbles that caused the drop in stocks in 2000 or the housing bubble in 2007. The US economy is growing at approximately 2% and adding new jobs at a healthy rate, according to the New York Times.
Other experts believe a recession is indeed looming. A recent panel of more than 100 housing experts and economists discussed the likelihood of a recession in 2020. Unlike the housing issues that contributed to the last recession, the panelists believe “trade policy, geopolitical crisis, or stock market correction” would be contributing factors for an impending recession.
With the backdrop of uncertainty, commercial real estate investors may tighten their risk spreads, resulting in less activity.
What Impact could the Election Have on CRE?
Much like a looming recession, the primary connection between an election year and CRE is the fear of the unknown. An election creates uncertainty and questions. The implications of change for taxes, interest rates, trade, and a litany of other policies create hesitation for investors.
Beyond uncertainty, there are often specific effects on CRE during an election year. Research indicates that property prices during an election year tend to increase at a slower pace while everyone adjusts to the new normal. As a result, election years are often better for buyers than sellers.
Can CRE Bring New Opportunities?
As title & escrow companies consider additional methods of generating revenue, the CRE market could be an appealing option. Growth in CRE in 2020 is promising and could offer consistent transaction volume for your business.
Qualia’s platform is designed to help you scale your business and meet new CRE demand. To learn more about Qualia features designed to make commercial transactions more seamless, schedule a demo by clicking below.