The third quarter of 2024 witnessed an increase in delinquency rates for multifamily loans held by both Freddie Mac and Fannie Mae. This is a concerning sign, especially as the multifamily real estate market faces numerous challenges from rising interest rates and living costs, impacting borrowers’ ability to make payments.
Here's ads banner inside a post
Freddie Mac: Notable Increase in Delinquency Rates
Freddie Mac reported a noticeable shift in delinquency rates for its multifamily loans throughout each quarter. In the first quarter of 2024, the delinquency rate was 0.44% in January, decreasing to 0.35% in February and dropping further to 0.34% in March. However, the second quarter saw slight fluctuations with a rate of 0.35% in April, 0.36% in May, and a rise to 0.38% in June.
In the third quarter, delinquency rates began to rise steadily, with 0.39% in July, a slight decrease to 0.38% in August, but climbing back to 0.39% in September. Compared to the second quarter, the Q3 delinquency rate rose by a few basis points, indicating increased financial pressure on borrowers in the multifamily sector.
Here's ads banner inside a post
According to the report, this increase was primarily driven by a rise in delinquent floating-rate loans, including small balance loans in their floating rate period. The higher floating rates created a greater financial burden on borrowers, especially in the context of rising living costs and tighter liquidity in the market.
Notably, in September 2023, Freddie Mac’s delinquency rate reached as high as 24%. This spike raises questions about the financial health of the multifamily real estate market, especially as floating-rate loans continue to be a major contributor to delinquency rates.
Fannie Mae: A Gradual Increase in Delinquency Rates
Here's ads banner inside a post
Similarly, Fannie Mae also observed a gradual increase in delinquency rates for its multifamily loans. In the first quarter of 2024, the rate was 0.54% in January, dropping to 0.53% in February, and further to 0.51% in March. In the second quarter, this rate declined to 0.49% in April and remained stable at 0.48% for both May and June.
However, in the third quarter, Fannie Mae’s delinquency rate began to rise slightly, with 0.49% in July, 0.50% in August, and 0.52% in September. This increase reflects a general trend in the market, as financial conditions become more challenging for borrowers in the multifamily real estate sector.
Although this increase is not as significant as Freddie Mac’s, it still serves as a warning sign regarding the difficulties facing the multifamily real estate market. The continued high interest rates, along with financial pressure from living costs, have created notable challenges for borrowers in maintaining steady payment capabilities.
Challenges Ahead for the Multifamily Real Estate Market
The increase in delinquency rates for both Freddie Mac and Fannie Mae in Q3 2024 is not merely statistical but rather a warning sign of the challenges that the multifamily real estate market may face in the near future. With rising floating interest rates putting significant pressure on borrowers, many experts fear that delinquency rates could continue to rise if government or financial institution support measures are not implemented.
Risk management for multifamily real estate loans will become more crucial than ever, particularly as global financial conditions remain volatile. Organizations like Freddie Mac and Fannie Mae may need to reconsider their lending policies, especially for floating-rate loans, to help reduce the burden on borrowers and stabilize the market.
The increase in delinquency rates in Q3 2024 for Freddie Mac and Fannie Mae highlights the instability of the multifamily real estate market amid high interest rates and increasing financial pressure. Floating-rate loans are a major factor contributing to this situation, and without appropriate support measures, the market may face even greater challenges in the future.
