It’s no secret that the COVID-19 pandemic has impacted virtually all aspects of life and many industries. While the real estate market is no exception (consider supply chain issues, labor shortages and rising labor costs, and land scarcity) that have plagued markets for the better part of the last 2 years) however, factors that would typically roil most markets did not faze the housing market in 2020, and that’s still going strong today.
Surprisingly, U.S. home price growth actually accelerated in 2020. The Amherst Home Price Index (HPI) grew 9.4% year-over-year as of October 2020—the fastest appreciation gain in home prices in more than a decade. In recent memory, mortgage interest rates have been at or near historic lows, even as some fluctuations have been present. This year, they have risen somewhat, though that doesn’t indicate they’ll skyrocket.
Unsurprisingly, the pandemic has driven the need for more space, both inside the home and outside, raising the demand for single-family housing in virtually all markets. As transit usage has dropped (as of January 2021, transit activity still has not recovered to pre-COVID levels in many markets) and workplaces have emptied with newly implemented entirely remote or hybrid work arrangements, the need for a home that serves as both living and workspace has become a key driver in single-family home sales and rentals, and in many cases, more so outside of denser urban areas to lower-cost, low-tax cities, suburbs, and semi-rural regions.
Post-COVID, homes sales velocity picked up further with an average U.S. homes sales velocity pacing at 68% versus 54% pre-COVID. For investors, this means new opportunities to secure business purpose loans—or BPLs—for securing investment properties in various markets. As of so far this year, investor BPLs include a wide but interconnected array of borrower and collateral types across three primary industries: fix-and-flip, construction, and single-family and transitional multifamily units.
The benefits of fix-and-flip/construction BPLs
Both the fix-and-flip as well as the new construction options are highly predictable markets for investors to pursue, both consistently representing 5-7% of the total home sales in the U.S. The fix-and-flip market specifically is driven by an aging housing stock, allowing investors to have a wider inventory to choose from. Additionally, they are facing attractive borrower returns, making the prospect for meeting the demand for renovated or new properties that much more appealing to pursue.
Alternatively, given the housing market pricing and supply dynamics, new construction loans are a key growth area for investors to take advantage of.
The benefits of single-family rentals
A permanent and predictable fixture of the U.S. housing market, single-family rentals are a stronghold in the real estate industry. Consider that since 1965, approximately 35% of the $25+ trillion U.S. housing stock has been consistently rented. What does this mean for investors? As an alternative option to fixing-and-flipping, think about the benefits of fix-and-hold properties that will be the source of continued, monthly income. Between 1965 and 2020, the single-family rentals have barely fluctuated.
For single-family rental lenders, this demand is buoyed by fragmented property ownership, as well as a fragmented financing market. In fact, 90% of single-family rentals are owned by private investors in need of investing—an opportunity for private lenders as well as investors.
The benefits of transitional multifamily units
Over 10 million of 65% of small property units are in structures built more than 30 years ago, many of which are ripe for infill projects in urban markets. Similar to fix-and-flips, an aging stock provides opportunities for investors to transition small multifamily properties, add to the market, and give themselves the opportunity for continued monthly income.
As a result, there is a growing bridge loan market for transitional projects on small multifamily properties (those which have less than 50 units).
For investors, the projections for 2022 are ones that open doors to new investment opportunities when the right markets are selected, and the right strategies are implemented. Markets that may have previously felt undesirable for long-term investing (rural or semi-rural; suburban; vacation destinations) are now promising to be sought-after regions as we’ve entered the third year of the pandemic. At Temple View Funding, LP (“Temple View”), we excitedly support and fund everything from the standard fix-and-flip to the ground-up construction to the short-term rental to meet all the unique needs investors may have. If you are ready to discuss expanding your portfolio, contact us today.