Chandan Economics' most recent analysis of third and fourth quarter mortgage origination evinces a notable shift in the apartment sector. As the chart below illustrates, a significant share of new multifamily mortgages was underwritten to a higher net operating income than reported during the underwriting process. Evaluating the loans on an individual basis, there is invariably a good explanation anchored in higher occupancy and rental rates. Nonetheless, the migration in underwriting is consistent with previous cycles' patterns presaging higher rates of stress on loan performance through maturity. In the current scenario, it coincides with a slowdown in rent growth to a more sustainable pace (not a bad place to end up) that is not full reflected in lending standards. More to come as we crunch the numbers.
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Dr. Sam Chandan
An irreverent take on the macroeconomic environment. Dr Sam Chandan is President and Chief Economist of Chandan Economics and an adjunct professor in real estate and public policy at the Wharton School of the University of Pennsylvania.
