Some aren't just waiting around for things to get better
It’s easy to blame the emergence of COVID-19 for mortgage industry ills. But mounting evidence suggests that some of the most corrosive economic effects being dealt with now pre-date the pandemic, and were laid bare – not spurred as the virus spread – by the scourge.
Take housing, for example. While some blame the pandemic for a limited housing stock, the anemic supply of new homes actually pre-dates the virus spread with various external factors contributing to a construction slowdown. Left in the void of slowed construction is an aging stock of existing homes – 65% of which date to the Carter administration.
According to Statista, a provider of market and consumer data, around 10.5 million homes in the US were between 20 and 31 years old. “This was the most common age bracket for American homes,” researchers wrote.
According to a Freddie Mac report, the slow recovery of new home construction is largely an after-effect of the Great Recession, not the pandemic. Still, COVID-19 is blamed for disruption in new construction, which has prompted a “severe shortage of new housing stock,” according to the report titled “Where is the Aging Housing Stock in the United States?”
Here’s another startling statistic from the report: “As of 2018, nearly 80% of the US single-family dwelling market is at least 30 years old and more than half of them were built before 1980.”
The ambitious study broke down the share of aging housing per county across the US. “While the overall housing stock looks younger in some areas at the county level,” researchers wrote, “the share of aging housing stock is exponentially higher in selected pockets of the neighborhoods when we examine the data at a more refined, geographical level.”
Some in the industry aren’t willing to wait it out, instead taking proactive measures to thrive in the softened market. RCN Capital is making a major push in lending to investors keen on rehabilitating aging homes. Short of that, investors are being encouraged to look at multifamily projects in the midst of a housing crunch.
Read more: Lender has rosy outlook amid pandemic
“From our side of things, we’re looking at two sides of our products,” RCN Capital’s CEO Jeff Tesch said in a recent interview with Mortgage Professional America. “One is debt service coverage ratio (DSCR) loans to investors who are buying rental housing and providing homes for people to live in from a rental perspective, and then the other side of our products is providing financing to investors who are taking distressed housing – housing that is often uninhabitable – providing those dollars to investors who are converting those homes into homes that families can once again live in.”
While some in the industry experience anxiety over the changing market, projections are downright bullish at RCN Capital: “We’re excited about the marketplace,” Tesch said.
Kiavi is thinking of rehabbing too. One of the nation’s largest lenders to real estate investors, Kiavi recently created a primer for those interested in fixing and flipping existing homes – circumventing supply chain obstacles that were also exacerbated by the pandemic. “We have seen supply chain disruptions affect most industries and the housing industry is no different,” Stephanie Casper, vice president of sales at Kiavi, recently told MPA.
To mitigate challenges, the company released a multi-pronged tutorial of sorts for those interested in staying liquid in the pandemic’s midst. “Returns can vary widely, depending on the area the project is in, and the scope of the project,” Casper said. “The quality of materials used in a project can also drive up the cost of the renovation.”
In keeping with the volatility of the times, returns on investment are hard to estimate, Casper noted. But planned just right – methodically, with consideration to each element – investors can make a profit off their fix-and-flip ventures.
“It is hard to suggest a certain ROI on the project as there are so many other factors to take into account,” Casper said. “These variables – such as the location, duration of the project as well as the extent of renovation – need to be factored in. Doing research and working with the right partners – including the right financing partner and contractors – can help mitigate some risks, and help ease unexpected outcomes.”
Given scarce construction amid an aging housing stock, multifamily investments figured prominently among transactions recently closed by Eastern Union – one of the nation’s largest commercial real estate finance firms.
A perennially popular investment, multifamily saw a noticeable uptick among the numerous transactions across 240 American cities in 32 states on which Eastern Union recently closed. The upward trend is not only spurred by a construction slowdown, but soaring values for existing homes that erode affordability for first-time homebuyers.
“Multifamily always take up a very large portion of the transactions that go on in the country,” Eastern Union CEO Abraham Bergman said in a recent interview with MPA. “There are a lot more people out there who are OK with renting an apartment. The new American Dream might be renting an apartment so you can move anytime you want. So, you’ve definitely seen a big demand for housing across the country.”
Among the most prominent multifamily deals at Eastern Union were a $70.9 million move for a multifamily property in Atlanta and a $54.7 million in financing for two single-family rental portfolios in Baltimore.
Short of traditional housing, an increasing number of investors zeroed in on mobile home parks as a viable alternative, Bergman said. One of the lender’s biggest such projects was a $12.77 million in financing deal for a mobile home site in Houston.
“We did see sort of an uptick in the unusual deal, not your absolutely typical deal happening,” the CEO noted. “In the last year or two, we’ve seen an uptick in self-storage; we’ve seen an uptick in mobile home parks; we’ve seen an uptick in industrial, which is obviously a product of online shopping.
“It’s interesting that you do see more transactions coming along the way – even substantially sized transactions – that fall under maybe some of the more specialty-type products. We have definitely seen an increase in value in those areas.”