Loan Standards Tighten and Loan Demand Declines in Q4

The Federal Reserve Board’s January 2023 Senior Loan Office Opinion Survey (SLOOS) for bank lending activity, with further analysis provided by the National Association of Home Builders (NAHB), reveals that over 2022Q4, banks reported weaker demand for residential real estate (RRE) loans, home equity lines of credit (HELOCs), and commercial real estate (CRE) loans.

In addition, the survey reported that credit standards stiffened across all categories of mortgage loans as well. Residential real estate credit standards tightened across the board relative to 2022Q3. Mortgage lending standards constricted the most for non-QM jumbo, QM jumbo, and QM non-jumbo, non-GSE eligible RRE loads. On the other hand, GSE-eligible loads experienced only a small increase in the net percentage of banks reporting tighter standards in 2023Q1 than 2022Q4.

Lending standards for CRE loans widely tightened as well. The largest increase in tightening over the prior quarter were for loans secured by multifamily residential properties, up 17 percentage points to 57%, and construction and land development loads, which were up 12 percentage points to 69%. Banks also reported that demand for CRE loans all decreased and declined by more than they had in 2022Q3.