In our last post, we discussed how the surge of new jobs and fall in employment is creating demand for real estate and thereby benefiting real estate investors. One major cause of this trend is the growth in housing starts, which has historically benefitted homebuilders, rehabbers, and real estate developers
In 2015, the trend for housing starts is expected to remain strong after a banner year in 2014 already caused real estate prices to rise.
Most recently, the National Association of Realtors noted that total real estate sales are up 3.5% on a year-over-year basis, while unsold inventory has fallen by half of a percent. Why? According to NAR Chief Economist Lawrence Yun, home sales “improved over the summer once inventory increased, prices moderated, and economic growth accelerated.”
In other words, an improving market is a rising tide for all boats.
The Historical Trend
This data is a clear improvement from recent years, but home sales are still far below their historic norm. In the late 1990s and early 2000s, existing home sales exceeded 5 million total units more often than not; when below that number, they stayed well above 4 million. But in late 2014, we failed to get over a rate of 5 million sales, and existing home sales were actually down 3.1% from 2013.
A bad start to the year is mostly to blame, with bad weather in the earliest months of the year and rising rates causing a slowdown in the housing market.
That trend is expected to reverse in 2015 for a couple of reasons. For one, median home prices are increasing at a slower rate than they were a year ago. This moderation is keeping houses affordable, which should encourage more buyers to enter the market.
Some economists are expecting a further slowdown in home price growth in the future, which will be a good thing for the market as a whole. “Housing costs – both rents and home prices – continue to outpace wages and are burdensome for potential buyers trying to save for a downpayment while looking for available homes in their price range,” notes Yun.
The Credit Picture
Secondly, credit is cheap and getting cheaper. With 30-year mortgage rates falling to below 4% in most parts of the market, the retail sector is warming to the idea of purchasing a home, especially as this cheap credit is available at the same time that jobs are increasing and home prices are showing positive growth for several years in a row.
The issue of credit, however, remains unclear for investors. Many banks are getting more comfortable giving residential lenders credit, as jobs become more stable, unemployment rates fall, and more government boosts (such as cheaper mortgage insurance premiums) bring more people to the market. But banks are still scared of taking on too much risk, and they’re aware of the growing regulations and scrutiny that they face as a result of the collapse of subprime loans in 2008.
This doesn’t mean the real estate investing market has dried up. It just means that it’s moved. Specialist financing firms and real estate investment companies are using their expertise and unique insights to find profitable investments that banks are passing on. They know which projects are going to benefit the developers and the creditors, so they’re lending and they’re seeing a rapid growth in demand.
If you’re in need of a hard money loan for your real estate development opportunity, Socotra Capital can help. Socotra understands the unique needs of real estate investing and can provide you with an equity-based solution to help get your project off the ground. It’s time to take advantage of this strong and still-growing market.
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.