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The theme of the latest Senior Loan Officer Opinion Survey reflecting banks’ lending practices, in the first quarter of 2020, is one that is echoed in other reports produced by organizations in the financial services sector. Amid the continuing efforts to slow the spread of COVID-19, focusing on existing assets and clients is more important than expanding balance sheets to include new assets given to new clients. The data show that while the demand for homeownership is high, on the supply side businesses consider real estate development, be it in single- or multifamily, to possess greater risk in current circumstances.

On net, 50% more banks in the latest survey reported tightening of standards of CRE loans than banks that reported a loosening of standards. In a similar vein, businesses’ demands for loans to finance commercial real estate development waned in the first quarter, as well, with 22% more banks, on net, reporting a decreased demand than banks that reported an increased demand.

A major net share of banks also reported tightening standards on construction and land development loans, another category of commercial real estate lending. The effect was more pronounced in large banks, where the share of banks was more than 50%. The demand for such loans was equally low, with a modest net share of clients reporting weaker demand.

The above figure shows that while businesses are hesitant on beginning further residential development, American consumers want to get back into the economy and that the demand for homeownership is still strong, particularly for financing the purchase of single-family homes. Banks reported stronger demand for all categories of closed-end mortgage loans and weaker demand for all categories of consumer loans. However, as mentioned in earlier analyses, banks’ have significantly ramped up loan approval standards, in anticipation of many consumers’ diminishing creditworthiness because of the economic consequences of COVID-19.