A sharp drop in loans for apartments led a general pullback in commercial real estate lending.
The U.S. multifamily sector saw a plunge in lending from a high quarterly growth rate of 5.4% in the second quarter of last year to 2.4% in the fourth quarter.
Increases in borrowing costs slowed the rate of both commercial real estate and multifamily loan growth throughout the year.
The Federal Reserve intentionally sought to cool the U.S. economy in response to the rapid increase in inflation that had ballooned to a high of 8.9% in June. Aiming for a 2% inflation rate target, the Fed has raised the interest rate on federal funds from 0.08% in February 2022 to 4.83% as of March 24 of this year.
The banking industry faces significant downside risks from the effects of inflation, rising interest rates and continued geopolitical uncertainty — all of which could slow loan growth further, according to the Federal Deposit Insurance Corp. And the collapse of Silicon Valley Bank and Signature Bank is expected to make real estate financing even more difficult.
