The faltering economy has led to a spike in construction loan delinquencies, and the problem could deepen in the near term. The delinquency rate on apartment construction loans registered 3.7% in the third quarter, up from 2.9% in the second quarter, according to real estate research firm Foresight Analytics of Oakland, Calif. Delinquencies on commercial construction loans rose from 4.1% to 5.2% during the same period.

What’s more, the volume of construction lending on commercial properties rose 4% in the third quarter to $307 billion. Multifamily lending activity also climbed moderately in the third quarter, rising to $47.6 billion from $46.6 billion in the second quarter. The results are based on an analysis of lending activity at FDIC-insured commercial banks and thrifts.

The silver lining perhaps is that any expansion of construction activity earlier this year is not likely to continue into the fourth quarter, according to Foresight Analytics.

The impact of the frozen credit markets in mid-September following the bankruptcy filing by Lehman Brothers isn’t really reflected in the third-quarter volume of construction lending activity, according to Matt Anderson, a partner with Foresight Analytics. However, the impact is likely to be reflected in fourth-quarter activity.

“There is a certain amount of momentum in construction activity. It doesn’t necessarily mean that projects will get halted or canceled just because the market is softening,” according to Anderson. “In many cases, lenders have made commitments to fund loans. Unless something extraordinary happens or the developer decides to halt a project, the bank will be obligated to make good on its commitments and lend more on those projects.”

In another sign of deterioration, the delinquency rates on both apartment and commercial construction loans are now at higher levels than they were during the previous downturn in the third quarter of 2001. Back then, delinquencies on apartment construction loans stood at 2.3%, while commercial construction loans posted a delinquency rate of 2.9%. Foresight Analytics considers any loan that is more than 30 days past due as delinquent.

While the government has been much more aggressive in addressing today’s economic downturn than during the 2001 recession, the business climate doesn’t seem to be improving, says Anderson. In fact, most investors fully anticipate higher delinquencies on commercial mortgages in the near term, he notes.

“To some extent, the current freeze in the credit markets is self-fulfilling. Lenders are restricting credit because they are worried about getting paid back. However, the restriction in credit makes it more likely that strapped borrowers will default,” says Anderson.

The Midwest is most susceptible to rising delinquencies relative to commercial construction loans due to heavy job losses tied to the beleaguered auto industry. In the apartment arena, the markets most at risk for rising construction loan delinquencies are those hit hard by the housing downturn, including Las Vegas, Southern Florida, and Phoenix.

Of all the categories tracked by Foresight, condominium construction loans posted the highest delinquency rate in the third quarter — a whopping 20.5%. Markets that have experienced the most condo development in recent years are likely to be hardest hit by rising loan delinquencies. Those markets include South Florida, New York, Los Angeles, Chicago, Atlanta, and Las Vegas.