Regulators wary of surge in construction, development loans
- Construction and development (C&D) loans once again outpaced all other loan categories in 2016, causing regulators to keep tight watch over commercial lending practices, according to CoStar.
- The issuance of C&D loans grew 14% in 2016 and 13% in 2015, even though the lending industry at large only saw 5% growth for those two years and contraction in the rate of some lending categories like residential mortgages and auto loans.
- However, whether it's in an effort to avoid the chance of another Great Recession-type lending debacle or in response to Federal Reserve concerns, banks have kept C&D loan issuance (3.4% of total loans) under pre-financial crisis levels (8.4%).
Despite the hesitation from regulators, banks are expected to boost C&D lending this year through the first quarter and likely beyond, partially driven by the positive outlook of construction executives. According to the latest Wells Fargo Equipment Finance Survey, construction industry executives displayed record levels of optimism about the year ahead as they look forward to the potential for increased activity brought on by an aggressive infrastructure spending program courtesy of the Trump administration.
In February, the Fed also expressed concern around the rate of commercial lending for luxury residential developments, indicating that segment could be headed for a bubble. Oversaturation in major metros has some industry onlookers predicting that officials will raise interest rates higher than expected, partially in an attempt to throw some cold water on the rate of lending for these projects. Compounding Fed concerns was a Fitch Ratings report that predicted commercial mortgage delinquencies would increase by as much as 2.4% this year after several years of declines.
- CoStar Banks Up Pace of Construction Lending for Second Consecutive Year, Raising Concerns for Regulators
- Bisnow 2016 LOAN GROWTH LED BY CONSTRUCTION AND DEVELOPMENT, CONCERNING REGULATORS Read more at: https://www.bisnow.com/national/news/construction-development/regulators-are-concerned-by-2016s-jump-in-construction-and-development-lending-72022?utm_source=CopyShare&utm_medium=Browser
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