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

Abstract

The pandemic-driven rise in work-from-home (WFH) has increased stress in commercial real estate (CRE) markets, potentially affecting banks’ lending beyond CRE. I measure banks’ exposure to the WFH shock using pre-pandemic county-industry employment, industry teleworkability from Dingel and Neiman (2020), and banks’ 2019 branch deposit distributions. Among banks with less than $100 billion in 2019Q4 assets, more-exposed banks exhibit delayed balance-sheet adjustments and deterioration in CRE loan performance after 2022. A one-standard-deviation increase in WFH exposure is associated with a 4.16-basis-point increase in residential mortgage rate spreads during 2022–2025. These findings provide evidence that post-pandemic CRE stress spills over to residential mortgage lending.