2020_Commercial_Real_Estate_Market update from a mortgage banking firm

2020 Year-End Market Review

December 17, 2020

The year 2020 has been interesting from a financial markets perspective, to say the least. The COVID-19 environment created violent market disruptions in March, April, and May of this year. This resulted in a significant drop in the stock market (the Dow Jones industrial average dropped to 18,213.65) and a flight to safety in the Treasury market (the benchmark 10-year Treasury dropped to 0.318%). During this period of volatility, the Federal Reserve stepped in and dropped the federal funds rate to 0.00%. Additionally, the Federal Reserve provided a $2.3 trillion stimulus called TALF (Term Asset-Backed Securities Loan Facility), which injected liquidity into the market. The TALF injection included the acquisition of AAA CMBS bonds for the first time in the country’s history. This helped stabilize the financial markets.

With the financial markets stabilized by the second half of the year, a number of things relating to commercial and multi-family real estate finance took place:

  1. Borrowing rates hit all-time lows. Borrowers can now get long-term fixed-rate loans as low as 2.50% for certain high-quality deals. Most 10-year fixed-rate loans are in the 2.50-3.50% range.
  2. The CMBS and agency markets are not only stable, but have provided the liquidity necessary for our highly functioning real estate markets to resume activity.
  3. The overall liquidity in the lending market is extraordinarily high. All segments of this market are currently looking to lend.
  4. As vaccines for COVID-19 are being deployed, investors and lenders have the end of the pandemic in sight and have become more optimistic.

It appears that we are moving into a more normalized financial market in 2021. The Fed has just announced in their recent meeting that they will continue asset purchases under TALF “until substantial further progress has been made towards the committee’s maximum employment and price stability goals.” This stance should help keep the economy in check. We will have to wait and see what 2021 brings.