Financing services provider Walker & Dunlop suffered major drops in transaction volume and revenue at the end of 2022, as commercial real estate lending slowed in anticipation of financial instability caused by high inflation.
The company’s leadership, however, is hopeful investors will overcome their fear of the unknown.
“It’s very interesting the psychology of the market right now,” CEO Willy Walker said Tuesday during a fourth-quarter earnings call. “Everyone’s waiting for somebody else to step in and do something in a major way.”
After a relatively stable start to the year, Walker & Dunlop’s total transaction volume in the fourth quarter dropped 59% year over year to $11.2 billion, mostly due to a decrease in debt financing from banks and the U.S. Department of Housing and Urban Development, the company reported. The drop-off in the second half of the year brought full-year transaction volume down 7% from 2021.
It was a year of unexpected losses for Walker & Dunlop, which had outlined significant growth last year before the Federal Reserve implemented major interest rate hikes in the second half of 2022 to fight inflation. Low transactions resulted in a 31% drop in revenue in the fourth quarter, putting full-year earnings at a flat line compared with 2021.
A pullback in pricing from housing finance giant Fannie Mae, compounded by rising interest rates, forced the company to adjust pricing on its Fannie Mae loans, which resulted in lower servicing fees for Walker & Dunlop.
The cost of multifamily loans increased about 10% over the course of 2022 due to fluctuations in interest rates and loan-to-value ratios, Fannie Mae and Freddie Mac data showed. This rising expense has caused Fannie Mae and Freddie Mac to cut back on the volume of multifamily loans they can acquire by $3 billion for 2023.
Despite its falling transaction volume, Bethesda, Maryland-based Walker & Dunlop managed to maintain its ranking as the top Fannie Mae lender for the fourth consecutive year, delivering a record market share of 16.5% and demonstrating that the whole market is struggling with macroeconomic headwinds.
Walker voiced optimism in regard to the company’s long-term goals, predicting that many will follow once a few players jump back into the market.
“The moment the dam breaks and somebody goes and makes a major stake saying they think the market has turned, the floodgates will open, and the capital will come back," he said during the call.