The latest release of the Federal Reserve’s Senior Loan Officer Opinion survey reveals that the COVID-19 pandemic and its widespread economic hardship caused many banks to elevate their qualification standards across all credit classes of household and business loans. With the tightening of standards also came the burden of interest rate floors on various financial products for commercial and Industrialized lending. As an example, in the second quarter of 2020, on net, 64% of banks held tighter standards for financing multifamily developments than banks which did not, and 81% of banks held tighter standards for financing construction and land development than those which did not. At the same time, an overwhelming positive net share of real estate businesses expressed less demand for those activities; on net, 58% of banks reported less demand for multifamily loans and nearly 60% of banks reported less demand for loans for construction and land development. Unlike the demand for commercial real estate, the demand for residential real estate, i.e., single-family units, has shown strong growth.
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COVID-19 Pandemic Resulted in Elevated Loan Qualification Standards in the Second Quarter