Compared to Prior Cycle, Slow Growth in Banks' Commercial Property Lending

The most recent Bank Lending and Default Report from Chandan Economics showed that banks are now growing their construction loan balances at a faster rate than their commercial or multifamily mortgages (see GlobeSt’s coverage). As of Q1 2015, the balance of construction loans held by banks had increased by an impressive 14.6 percent from a year earlier. In comparison, commercial and multifamily loans increased over the same one-year period by 4.1 percent and 12.4 percent respectively. 

A later trough in construction lending and the very low balance of construction loans currently held by banks are parts of the explanation for its relatively large increase in the new data. As of the first quarter, construction loans totaled $246.1 billion, down more than 60 percent from their peak seven years earlier in Q1 2008. From that small base (by historic standards), the near-15 percent increase reflects a $31.3 billion climb in construction loans outstanding. The absolute in increase in commercial loan balances was nearly 50 percent higher at $46.0 billion. But the base was a heftier $1.2 trillion.