Digital CRE platform data identifies market trends

“A big thing we’ve seen from the data that we’ve been generating just from the variety and plethora of borrowers and lenders we communicate with on a daily basis through our technology, investors and property buyers – not as much property owners but really property buyers, have become more sensitive to the rapidly changing and incredibly uncertain interest rate environment,” McBroom added. “What that does is highlight a very specific macroeconomic, fundamental relationship between interest rates and prices. With the Fed raising the Federal Funds rate and mortgage rates becoming more expensive as well, we kind of see a pullback or decrease in the actual prices of assets underlying these loans themselves.”

Another eye-opening finding lies in the realm of pricing amid a rising rate environment: “As the rates rise, the borrower demand is affected because cost of capital, cost of debt, becomes a lot higher and thus they kind of need lower prices to justify the amount of leverage they want or the actual loan a lender is willing to underwrite,” McBroom said. “We haven’t seen a drawback or drawdown of these prices. We haven’t seen them downwardly adjust to satisfy this new equilibrium, and as the demand has been shifted necessarily by the rising rate environment. There does have to be some balance on the pricing side, on the buy side, so there is this new equilibrium. We expect that if there is a lag between these prices and these rates – which, from what we’ve seen, there has been – that there’d be a pullback of demand for new permanent loan origination.”

The sampled data bore some of this out. As a share of total loans demanded, demand for permanent loans fell by 7.8%, while demand for permanent refinance loans fell by 17.1% in the second quarter of this year when compared to the first quarter, according to Lev’s findings. In the data extrapolation, it appears to yield signs that investors and property owners have become more sensitive to the rapidly changing interest rates environment as evidenced by the negative correlation between interest rates and stabilized transactions, McBroom noted.