Going into 2015, the real estate market looks strong. Prices are rising, credit is cheap, and the economy is growing. Things are looking good for investors, especially if they’re looking for bridge loans or equity-based loans to work on a distressed property rehab project or a fix-and-flip opportunity. But will the market stay strong for the rest of the year?
A close look at the market suggests that four trends are likely to sustain themselves throughout 2015 and beyond. A combination of low borrowing costs, cheap energy, and strong GDP growth are forming a perfect storm that is good news for homebuyers, and great news for developers and investors catering to those homebuyers. Here are the four major trends we see playing out in 2015.
1. Credit Will Be Easier and Cheaper—for Now
U.S. mortgage rates fell steeply in 2014, and they are likely to remain low, if not fall even further in 2015. According to Fannie Mae, 30-year fixed rates fell from 4.182% at the beginning of 2014 to 3.397% by the end of the year. Rates are still falling—as of January 8th, 2015, that same loan had a yield of 3.266%.
These lower rates are great for investors in two ways. First, they mean investors are paying lower borrowing costs across the market; it’s simply a lot cheaper than it used to be to borrow money to develop a real estate project. Secondly, and arguably more importantly, it is also jolting demand from consumers. Consumers are seeing that they can get more home for the same monthly payment thanks to these low rates, which is in turn encouraging more home-buying activity.
In 2015, we expect these trends to continue in the short term. U.S. Treasuries continue to fall, which has an immediate impact on the mortgage market. At the same time, easing credit standards from the U.S. government are making credit more available to more Americans. Finally, lower unemployment and strong GDP growth are taking the risk out of lending to a larger portion of the population. This all means more credit availability at lower costs.
2. Demand for Single-Family Homes Will Rise
Thanks to that lower unemployment and strong GDP growth, demand for housing is likely to rise as mortgage rates fall. On top of that, more young Americans are finally moving out of their parents’ houses and starting their own lives. The growing economy is making this possible, meaning this is certain to continue in 2015.
We’ve already seen housing starts grow at a healthy rate as the economy improves. For the last three months, the National Association of Home Builders has seen single-family housing starts grow by over 1 million. Building permits have gone over 1 million per month for the past five months. This all signals a very strong trend, which is great for Americans and real estate investors alike.
3. Price Growth Will Slow, but Stay Positive
While both demand and activity in the housing market are strong, the only sour note for investors is that returns may be pinched by slower price growth. This is just bitter tasting medicine for the market, however, since price growth is still likely to remain above the rate of inflation, but low enough to be sustainable and keep the market from going into another bubble.
In November, home prices rose 5.5%, according to CoreLogic, with an even higher 7.6% gain in California. However, CoreLogic is expecting the growth rate to slow to 4.6% in the next twelve months. While a clear slowdown, this trend means that investing in housing will still offer strong returns for investors and that the market is keeping itself in check to avoid a major burst.
4. More Investment Opportunities, Fewer Investors
Another overlooked benefit to the slowdown in real estate price growth is significant for local investors: it’s going to discourage the big money from flooding the market. Back in 2009 and 2010, hedge funds scooped up billions of dollars of real estate across the country. Private equity giant Blackstone was famous for its fix-and-flip investments across the country, and it remains part of the company’s portfolio.
Back when real estate bottomed and began seeing double-digit price increases, investing in real estate for multi-billion dollar investment firms made sense. The logic doesn’t work now, where there is more opportunity for a niche investor. This means there will be less competition at the auction block from big money, which will mean more investment opportunities for those who invest in the thousands and millions, as opposed to the billions.
Invest in Real Estate with Hard Money Loans
This is good news for small real estate investors seeking fix-and-flip opportunities and others who may be looking to break into the market by rehabbing a residential property. With an equity-based, hard money loan, anyone can take advantage of new opportunities in the real estate investment market. Hard money loans from Socotra Capital don’t require a high credit score, and you can even receive approval within 10 days, so your project can get off the ground in no time. If you are an investor – or a potential investor – looking to take advantage of growing real estate opportunities in 2015, Socotra Capital can help.
Your real estate assets are your best investments for the future. At Socotra Capital, we’re proud to be the premier direct hard money lender for California real estate. Contact us today to learn more about how we can help.