Commercial Real Estate Distress and Residential Mortgage Pricing: Evidence from U.S. Banks

Abstract

This paper studies whether banks transmit post-pandemic commercial real estate (CRE) stress to the residential mortgage market. I combine 2018–2025 Home Mortgage Disclosure Act originations, quarterly Call Reports, county-industry employment, and the 2019 FDIC Summary of Deposits to construct a predetermined bank-level measure of exposure to work-from-home-intensive local economies. Among banks with less than $100 billion in 2019Q4 assets, a one-standard-deviation increase in pre-pandemic WFH exposure is associated with a 4.16-basis-point increase in the rate spread on originated home-purchase mortgages during 2022–2025. Consistent with delayed CRE stress, nonperforming CRE loans at more-exposed small banks rise gradually and become statistically distinguishable from zero in 2024. I find no statistically reliable evidence that the pricing response varies with pre-pandemic capital or core-deposit funding. By contrast, the late-period increase in mortgage spreads is larger in less concentrated local markets and among lenders with weaker local market positions, providing little support for a simple market-power explanation centered on dominant lenders. Overall, the results indicate a delayed spillover of CRE exposure into residential mortgage pricing.