When structuring real estate loans, success isn’t just about knowing your lenders and borrowers—it’s about understanding the bigger economic picture. Properties are deeply influenced by broader financial trends, and as a third-party originator, real estate and GDP trends, interest rates, and employment data should be on your radar.
Whether you're a residential mortgage broker, commercial mortgage broker, private lender, referral partner, or affiliate partner, staying attuned to the most important economic indicators will assist you in advising your clients better. Being aware of these trends enables you to pair borrowers with the most suitable lending programs, predict market changes, and ultimately close more transactions.
Let’s break down the most important economic indicators that affect the real estate lending environment—and why they're significant to brokers such as yourself.
Gross Domestic Product (GDP) calculates the overall economic production of a nation and is a key sign of economic vitality. A growing GDP is indicative of a robust economy, which usually means more lending prospects and a demand for capital.
Why It Matters to Brokers:
Example: During times of robust GDP growth (e.g., 2017-2019), real estate lending experienced high origination volumes, with commercial property loans increasing at a rate of 6-8% per annum. Conversely, economic downturns (e.g., 2020) resulted in tighter credit conditions and lower funding availability.
Strong employment figures reflect a healthy economy, where companies are growing, and people have stable incomes—both key determinants of real estate financing.
Why It Matters to Brokers:
Example: According to the Bureau of Labor Statistics, in 2023, areas with job growth exceeding 4% saw a 12% increase in commercial lending approvals compared to regions with stagnant employment growth.
Inflation impacts everything from the cost of construction to mortgage rates. Moderate inflation is good for the economy, but too much inflation can reduce purchasing power and result in increased interest rates.
Why It Matters to Brokers:
Example: In 2022, inflation hit 9.1%, leading the Federal Reserve to raise interest rates aggressively. This resulted in a 30% drop in real estate loan applications due to affordability concerns.
Interest rates, set by the Federal Reserve, establish the price of borrowing. When rates are low, borrowing is desirable, and loan origination increases. When rates increase, affordability diminishes, and lending decreases.
Why It Matters to Brokers:
Example: In 2021, mortgage rates were at historic lows (~2.75%), leading to a 70% increase in refinance applications. By 2023, with rates surpassing 7%, loan originations dropped by nearly 40%.
Housing starts and permits measure the volume of new construction work. It's a measure of an upward or downward moving market if high numbers of permits are issued compared to a decreased slowdown.
Why It Matters to Brokers:
Example: In 2023, housing starts dropped by 14% due to rising labor and material costs, impacting the availability of short-term construction loans.
CCI measures how optimistic consumers feel about the economy. When confidence is high, people are more likely to make big purchases, including real estate.
Why It Matters to Brokers:
Example: When the CCI was above 120 in 2019, real estate investments surged. In 2022, as CCI dropped below 90, home purchases and loan originations decreased.
Rental vacancy rates reflect supply and demand in the rental market. Low vacancy rates indicate strong demand, while high vacancies suggest oversupply.
Why It Matters to Brokers:
Example: In 2023, cities with vacancy rates under 5% saw rental property loan approvals increase by 18%, while areas with 10%+ vacancy faced financing slowdowns.
Home price indices track real estate appreciation. Rising home prices suggest strong demand, while declining prices may signal a correction.
Why It Matters to Brokers:
Example: In 2021, home prices rose 18% nationwide, creating a surge in cash-out refinance applications. By 2023, price growth slowed to 3%, reducing refinance demand.
Inventory levels determine whether the market favors buyers or sellers. Low inventory suggests strong demand, while high inventory can signal a market slowdown.
Why It Matters to Brokers:
Example: In early 2022, inventory levels hit a 20-year low, driving aggressive price increases and record-high loan applications.
As a wholesale lending partner or third-party originator, understanding these economic signals allows you to:
By following these tips and partnering with trusted lenders like RCN Capital, you can position yourself as a trusted advisor and go-to resource for real estate financing. Ready to take your brokerage to the next level? Connect with RCN Capital today and see how we can help you and your clients succeed in the competitive world of real estate investing.