Housing Archives - Scotsman Guide

Sprucing up the Block

Jason Hutton — Fri, 29 Sep 2023 23:36:44 +0000

Fix-and-flip investors are one of the nation’s busiest groups of single-family homebuyers. In first-quarter 2023, more than 72,000 single-family homes and condominiums were flipped nationwide. These transactions accounted for 9% of all U.S. home sales in the first three months of the year, up from an 8% share in fourth-quarter 2022. Investors are not only growing their rehabilitation or rental businesses — they’re expanding their need for financing and are considering the use of debt on a more frequent basis.

It might be hard to believe that real estate investors, such as fix-and-flippers, are still growing their business. After all, housing inventory remains historically low and mortgage rates continue to tick higher.

“Investors of all types play vital roles in the long-term effort to address the nation’s housing shortage. Ironically, single-family investors can take advantage of low inventory to grow their businesses.”

Nationally, the number of homes for sale fell 15% year over year this past June to reach an all-time low, according to Redfin. The real estate brokerage also reported that new listings fell to 450,000 at that time, down 30.6% from a year earlier for the lowest level and largest annualized decline on record (aside from April 2020, when the COVID-19 pandemic first hit). And according to Zillow, the U.S. needs about 4.3 million more homes to meet current demand.

Adding to the gridlock is the fact that roughly four in five homeowners with a mortgage have an interest rate below 5%, while nearly one-quarter have a rate below 3%, according to Redfin. With interest rates on 30-year fixed-rate loans hovering around 7% late this past summer, nobody was moving unless they absolutely had to.

Inventory problems

Those who are interested in buying a home are watching and waiting to see if the Federal Reserve continues to raise benchmark interest rates in an effort to fight inflation. Prospective buyers may also have to contend with a reduction in lending activity in light of the failures earlier this year of Silicon Valley Bank, Signature Bank and First Republic Bank.

Builders are attempting to make a dent in the ongoing housing shortage, with the National Association of Home Builders reporting a seasonally adjusted annual rate of 983,000 single-family construction starts in July 2023 (up 6.7% year over year). But in spite of significant homebuilding and rehabilitation activity in recent years, there are roughly 16 million vacant homes in the U.S., and it’s a good bet that a large percentage of these need renovation.

“In spite of significant homebuilding and rehabilitation activity in recent years, there are roughly 16 million vacant homes in the U.S., and it’s a good bet that a large percentage of these need renovation.”

On the positive side for housing supply is that independent investors are finding these homes, fixing them up and reselling them to owner occupants in the middle-income range, helping to close the inventory shortage. Independent investors are projected to revitalize 350,000 homes in 2023.

In short, these small, localized investors are taking matters into their own hands and opportunistically filling in the gaps in housing inventory when government bodies and homebuilders fall short. To better accomplish these tasks, these people need financing.

Use of leverage

Historically, many independent real estate investors have used cash to acquire and rehab properties. But despite recent interest rate hikes, investors have grown more comfortable using leverage to fund their deals. Often, this backing comes from private lenders that are usually faster and more flexible to fund a project than conventional lenders like banks and credit unions.

In doing so, investors can reduce the amount of cash they put into any single property, and they can use the loan to complete the purchase and rehabilitation process or pull cash out of a prior investment. Debt also allows them to do more deals and grow their business with higher returns on equity. In fact, the BRRRR method (buy, rehab, rent, refinance and repeat) is predicated on the sensible and efficient use of debt to build rental portfolios and long-term passive income.

Even investors who already use debt seek diversity when it comes to loan products. They need access to nimble and experienced lenders that offer a variety of loan programs tailored specifically to their real estate investment strategies. On a fix-and-flip project, an investor might need a residential transition loan, which is a way for them to pay for construction, repairs and other business expenses.

With a buy-and-hold rental property, an investor might need a rental landlord loan, also known as a debt-service-coverage ratio (DSCR) loan. This is a type of nonqualified mortgage that uses the rental income generated from an investment property to qualify the borrower.

Each of these loan types are typically underwritten based on the borrower’s credit score, liquidity and experience. They are capped at a percentage of cost (purchase price plus repairs) or after-repair value. DSCR loans are also based on how much a property’s rental income covers the required principal and interest payments.

Alternative options

Investors need lenders with varying appetites for risk. Mortgage brokers should help these clients connect with reliable sources of capital and a proven ability to execute. Deals can happen quickly and investors are often looking for better funding options even as they’re closing a transaction.

Different types of real estate also require different lenders and programs. At any point, an investor might need a residential transition loan, which could take the form of a pure bridge loan, a DSCR loan, or a variety of niche products that support multifamily housing, mobile homes, raw land or ground-up construction.

Many investors also operate across multiple markets. While fix-and-flippers usually renovate homes in their own backyards, or specialize in a city or region, they can range far and wide to find the most profitable opportunities and diversify risk.

Buy-and-hold rental investors may build portfolios in multiple cities where they can find value-add opportunities at below-market prices. They may buy in markets as diverse as Boston, Dallas, Houston and Charlotte, and the strategies for acquiring, selling or recapitalizing these properties can vary significantly — hence the need for local lending expertise.

Strategic support

Investors of all types play vital roles in the long-term effort to address the nation’s housing shortage. Ironically, single-family investors can take advantage of low inventory to grow their businesses.

This is because they buy homes that may be uninhabitable, or those which the average consumer homebuyer simply doesn’t have the appetite or experience to renovate. Often, rehabbers also have the knowledge and resources to complete a project on time and on budget, and they make design decisions that are likely to be in high demand among most end buyers.

They can do all this work much more easily by partnering with commercial mortgage originators and capital sources that have experience and a high level of understanding of the investment landscape. They also need access to more than one lender, thus ensuring depth and diversity of mortgage programs and risk appetites.

A real estate investor might be looking to make an actual purchase while pricing a hypothetical deal (or a handful of deals) at the same time. They may be closing on one project and starting another simultaneously, and therefore need bridge financing to move quickly.

These investors can greatly benefit from a marketplace that supports their many strategies by offering multiple funding sources and programs, all with a central point of contact across the real estate investment space. This would enable lenders and brokers to more efficiently widen their originations pipeline, lower the costs of acquisition and quickly scale up their lending portfolios. In other words, such a marketplace would make it easier for mortgage professionals to up their game in an increasingly competitive landscape.

Increased speed and minimized friction are essential for lenders and brokers who seek to grow their businesses and encourage repeat customers. Borrowers will return to a marketplace when they know they can find the best available options and feel confident they are getting the best value.

● ● ●

Independent single-family home investors continue to play a critical role in the real estate market, and their impact is growing. Many iBuyers — companies that use automated valuation models to buy homes quickly — and large institutional investors have either left the playing field or have dramatically scaled back their operations for now. But the local players, knowing they can source and close attractive financing to support future growth, are leaning in and taking action with confidence.

With the housing shortage expected to continue for the foreseeable future, fix-and-flip investors will remain important drivers of inventory replenishment and growth in the market. They’ll generate a variety of attractive and repeat business opportunities for mortgage lenders and brokers for years to come. ●

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Jacob Channel, LendingTree

Jim Davis — Mon, 01 Aug 2022 09:00:00 +0000

The mortgage industry feels in many ways divorced from issues of homelessness — and for obvious reasons. Homelessness is a complicated challenge that goes beyond just a lack of housing. People who are living on the streets are unlikely to be in a position to buy a home of any kind for some time.

The number of homeless Americans has actually declined over time, according to the National Alliance to End Homelessness. In 2007, 647,000 individuals were considered homeless. Today, that number is about 575,000. But the homeless population has been growing over the past four years and is as visible as ever, especially in contrast with the recent surge in homebuying. California, New York and Florida have nearly half of the U.S. homeless population.

Does the mortgage industry play any role in limiting homelessness? LendingTree’s Jacob Channel looked at the causes and solutions to homelessness in a report released this past spring. Scotsman Guide spoke to Channel about his thoughts.

What interested you in this topic?

Since the start of the pandemic, we saw some really interesting relationships between people who have wealth and people who don’t. Mortgage rates hit record lows in 2021. Through 2020 and 2021, there was a huge uptick in demand for housing. A lot of people started buying houses, and not only that, they started to bid well over asking price. In a period of time where everyone seems to be buying a house, what about the people who not only cannot afford to buy a house but who cannot afford any type of shelter?

States with the most expensive housing tend to have proportionally higher homeless populations, right?

That’s very true. Certainly, that makes logical sense. If it’s more expensive to buy a house, it’s going to be more expensive to rent. More expensive housing often means that there’s less supply of housing on the market.

What about the people who not only cannot afford to buy a house but who cannot afford any type of shelter?

You look at California or Washington state, where you have some the highest-paying industries in America, and some of the wealthiest people — not just in America but in the world. But you also have issues of housing affordability for lower-income people, which is spurring on higher levels of homelessness.

In many cases, does homelessness involve mental illness, substance abuse or other factors apart from housing?

Certainly, there are instances where somebody, just through no fault of their own, doesn’t earn enough income to be able to live in their area and they’re forced out of their house. Oftentimes, people become homeless because they have mental health issues, they have substance abuse issues that prevent them from holding down a job, and that frankly prevent them from living in a housing unit where maybe they could be a danger to others as well as themselves.

Does the mortgage industry have a role to play in solving homelessness?

There may be instances where mortgage lenders should be encouraged a little bit to make loans for things that aren’t sort of traditional single-family houses. For example, sometimes there are alternate types of housing, like mobile homes, that can be good, safe housing. They can be really good options for people who don’t earn as much money, but oftentimes lenders shy away from them from a variety of reasons.

Do you believe that renters who are unable to purchase a house could be at risk for homelessness in the future?

If a homebuying market really heats up, a lot of times the people who are on the lower end of the buyer spectrum will end up being pushed into the rental market. That causes a ripple effect, wherein people who used to be able to buy no longer can. So, now they’re renting, which means there are fewer renter units available, which means that the people on the low end of the rental spectrum — who are just barely able to find a place — are now forced out altogether.

Did anything surprise you when you did the report?

Generally speaking, the number being as high as it was — 575,000. I’m from Wyoming, so the entire population of that state is only a little bit smaller than that. I’d sort of think about it from the perspective of, what if everyone I knew growing up was suddenly homeless? ●

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Janneke Ratcliffe, Urban Institute Housing Finance Policy Center

Jim Davis — Fri, 01 Jul 2022 13:17:42 +0000

After World War II, the U.S. government realized there was an emergency shortage of housing. Federal policymakers promoted home production in a number of ways, including limits to commercial construction, the removal of import tariffs on lumber and enabling families to buy homes with low-downpayment mortgages.

These steps worked, said Janneke Ratcliffe, vice president of the Urban Institute’s Housing Finance Policy Center. In an article for CNN Business, Ratcliffe noted that 15 million new homes were built from 1950 to 1959, while the homeownership rate rose from 43.6% in 1940 to 61.9% in 1960. (She points out that people of color did not fully benefit from this effort.) And she argues that the U.S. is facing another housing crisis.

“The post-World War II solution was build, build, build — especially build affordable housing,” Ratcliffe said. “I think building is part of the solution (now), with the traditional stick-built homes, but there’s a whole lot else that needs to happen as well.”

She said actions could include reducing the housing-obsolescence rate, promoting condominiums and manufactured housing, and rethinking risk tolerance in the mortgage process. Ratcliffe spoke to Scotsman Guide about ways to address the current housing shortage.

You believe that the nation is facing an affordable-housing crisis, right?

I do. We are somewhere between 3.8 million to 5 million housing units shy of what is needed. Maybe one of the most telling things is, using the latest report from CoreLogic, rent prices (for single-family homes) are up 13% year over year as of February compared to the year before and house prices are up 20% year over year.

It’s not like there’s going to be one silver bullet to solve this. You’re going to need to come at it from lots of different angles.

What does that mean for people and how do you convince policymakers that there is a crisis?

Since both rent and the cost of housing are rising in tandem, it’s making it harder and harder for renters to be able to save enough money and get that economic footing to turn around and buy a home.

The Biden administration just announced its plans (this past May). The White House has voiced that it is trying to manage inflation, but inflation is hard to manage when house prices are such a big part of consumer expenditures. As long as house prices are going up, you’re going to end up having some upward pressure on prices (for other consumer goods).

What is the administration planning to do about it?

They understand that there’s a supply crisis. Recognizing that there’s this big shortage that’s been building for a long time, there’s a need to create more units, both on the affordable rental and on the ownership side. The administration just announced some moves that clearly are supply-side-oriented. As the White House announcement conveys, it’s not like there’s going to be one silver bullet to solve this. You’re going to need to come at it from lots of different angles.

How do you convince developers to build more affordable homes?

Material prices are high. There’s not enough construction labor right now. People have cited the high cost of regulatory permitting. It just makes it very difficult to build a unit that’s affordable at the end of the day.

Subsidies are helpful. Some subsidies can supplement the buyer’s ability to pay more for the home using a broad, sweeping downpayment- assistance program. So, there’s one set of solutions that make the higher-cost home more affordable for the buyer through the way the financing is structured. And then the other set of solutions are about subsidizing the actual cost of creating the home.

What needs to be done about mortgage financing?

We’ve seen a fairly tight credit box over the last 10-plus years. By thinking strategically about how we really push the envelope, without going too far, how could that help improve homeownership?

People are beginning to worry about a housing bubble. Are they wrong to worry?

There’s genuine price pressure coming from the mismatch (between the supply of housing and demand). There are not enough units to fulfill the demand, both on the rental and the ownership side. And housing is slow. You can’t just turn around and ratchet up the supply quickly. ●

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Storms leave lasting impacts on local housing markets

Frank Nothaft — Fri, 01 Jul 2022 13:15:22 +0000

Editor’s note:

CoreLogic chief economist Frank Nothaft’s column has appeared in Scotsman Guide for years. It is with sadness to report that he unexpectedly died during production of our July magazine. Read about the loss here.

The Atlantic hurricane season runs from June through November of each year. Recent years have seen an increase in the number of severe storms along with resulting property damage and personal injury. And experts are predicting an above-normal number of tempests again this year. A look back at three storms over the course of 2020 and 2021 show the effects that these storms can have on local housing markets.

Hurricane Ida, which made landfall in August 2021, was a Category 4 storm that caused nearly 100 deaths and an estimated $75 billion in property damage, with about two-thirds of the damage occurring in Louisiana. Ida made landfall in Lafourche Parish, part of the Houma-Thibodaux metro area. Homes and businesses were damaged or destroyed, and families were displaced. The financial hardship caused by Ida led to a spike in home loan delinquencies. In the month following the hurricane, the transition rate from current to 30-day delinquency status, which had been running at about 1% per month, spiked to more than 7% in the Houma-Thibodaux region, according to CoreLogic data.

Many homeowners experienced ongoing financial trauma. The share of borrowers in Houma-Thibodaux who were at least 90 days behind on mortgage payments jumped by 50% in the latter half of 2021, rising from 4.4% in September to 6.6% in November. This coincided with a 16% decline in the nationwide serious-delinquency rate during the same period. Six months after Ida, the serious-delinquency rate in Houma-Thibodaux remained above that of Louisiana’s and was double the level seen in the months prior to the COVID-19 pandemic.

In the span of six weeks in 2020, hurricanes Laura and Delta made landfall just a few miles apart in the Lake Charles metro area, together taking dozens of lives and decimating southwest Louisiana. Similar to Houma-Thibodaux’s experience, Lake Charles’ monthly transition rate from current to delinquent mortgage status jumped from 1% prior to Laura to 8% after. While the effect on the current-to-delinquent transition was temporary, it had longer-term consequences for many homeowners.

The serious-delinquency rate in Lake Charles was below that of Louisiana as a whole prior to the pandemic. It rose at a similar pace as the rest of the state in the early months of the pandemic, but then moved much higher after Laura and Delta struck. As the chart on this page shows, it took about 12 months for the serious-delinquency rate in Lake Charles to return to the level for all of Louisiana.

The Houma-Thibodaux and Lake Charles economies had already been hurt by a drop in oil prices during the early months of the COVID-19 outbreak. With the additional strain of natural disasters, home prices were slow to recover and rent prices weakened as workers and families relocated. According to the CoreLogic Home Price Index, home prices in these two metros rose by 12% from March 2020 to March 2022, compared with a 19% gain for Louisiana and a 34% gain for the U.S. The home-price increases in Houma-Thibodaux and Lake Charles also were less than the two-year inflation rate of 15%.

Natural disasters cause extensive property damage, personal injury, a reassessment of hazard risk and disruptions in local housing markets. Similarly, mortgage delinquency rates spike in the wake of these events, meaning that the prices and availability of shelter also are affected. These impacts are likely to reoccur when the next major tropical cyclone hits the U.S. ●

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Pro-housing advocates push the conversation forward

Neil Pierson — Fri, 01 Jul 2022 13:14:13 +0000

Developers and conservationists in Contra Costa County, California, are battling over a voter- and city council-approved project to build 1,500 single-family homes and 150 accessory dwelling units (ADUs). A judge halted the start of the 600-acre development this past spring on the grounds of an inadequate environmental review, but the homebuilder vowed to address what it called “minor technical details” and move forward with construction.

In the wake of Minneapolis ending single-family exclusive zoning in 2020, a nonprofit organization recently launched an initiative to build 125 ADUs throughout the metro area, leveraging a $3 million grant in the process. The homes will be offered to formerly homeless veterans and their families.

If most of your wealth is in your house, you’re going to be very protective of property values.

– Jenny Schuetz, senior fellow, Brookings Metro

In Hawaii, state lawmakers passed a bill in May 2022 that will create and pay for a focus group on affordable-housing issues. A recent analysis found that Hawaii is the most heavily regulated state for homebuilding and has exponentially more requirements for construction of affordable housing than the U.S. average.

What do each of these events have in common? In one way or another, they’re tied to the long-running not-in-my-backyard (NIMBY) movement, commonly involving people who oppose new housing in their local neighborhoods. As the real estate and mortgage industries look to keep business flowing by combating historically low levels of available inventory and housing costs that are growing much faster than wages, they may look to jump on the yes-in-my-backyard (YIMBY) bandwagon.

This past March, the National Housing Conference held its annual Solutions for Housing Communications event in Washington, D.C. One of the panel discussions focused exclusively on the NIMBY versus YIMBY conflict. Moderated by Laura Grannemann of the Rocket Community Fund, the panel also included Matthew Lewis of the nonprofit advocacy group California YIMBY; urban economist Jenny Schuetz of Brookings Metro; and Matthew Taylor, senior planner for the city of Riverside, California.

Schuetz says many factors play a part in the formation of the NIMBY mindset. Regardless of demographics such as age, race and income, oftentimes these attitudes originate from people who’ve lived in the same neighborhood for a long time and are afraid of change.

“There is also a deep reliance on home equity as the primary form of wealth building in this country,” Schuetz says. “We have been encouraged to buy homes, to pay down the mortgage, as a way of building household wealth. If most of your wealth is in your house, you’re going to be very protective of property values, and so changes to your neighborhood that might decrease your property values are a pretty scary thing.”

A recent report from the UCLA Lewis Center for Regional Policy Studies discusses ways to “upzone,” or increase housing density, without severe shocks to land values. A key takeaway is that local governments should look to upzone as broadly as possible to reduce the potential for runaway values and displacement of residents. The report notes that many zoning changes to increase density over the past few decades have only involved specific neighborhoods or even single lots.

California YIMBY’s Matthew Lewis says that zoning reform to increase density is a “core aspect” of his organization’s mission. Affordable-housing advocates frequently struggle to educate the public about the effects of allowing more neighbors on their block.

“You increase land value, but you can reduce the cost per unit,” Lewis says. “You can lower housing costs for people coming in or for people who need lower-cost housing, but you don’t have to destroy the whole housing market to do that.”

In Riverside, California, elected officials charted a course this past October that could increase the city’s housing supply by 20% in the next decade. The decision reportedly met significant opposition, but it was effectively mandated by state law that required Riverside to plan for a minimum of 18,458 new homes by 2029. About one-quarter of these homes are to be priced for very low-income households. Riverside is at the center of one of the nation’s fastest-growing metro areas and has been adding about 40,000 new residents each decade since the 1960s.

“The state Legislature has started to act to make it more difficult for local jurisdictions to say yes or no on a case-by-case, kind of individually negotiated basis,” says Taylor, the city’s senior planner. “It’s a bad way to do development because it frankly drives up the cost of an individual development … and then you see situations where the only bets that the development community is willing to take are on the surer shots.”

These battles are being waged elsewhere. In Utah, there is a push to allow more “middle housing” that bridges the gap between single-family homes and large apartment complexes. In another example of NIMBYism, one-third of Utah residents who participated in a recent survey agreed with the statement that “I am more comfortable with development in other nearby cities or towns but not in my own community.” Additionally, Schuetz points to a so-called “shot clock” law that Texas implemented in 2019 to require local governments to act on development applications within 30 days, and a 2021 Massachusetts law that calls for cities to build more apartments near transit stations.

“There are so many arguments on every side (of the pro-housing movement) and I think it’s great that communities are finding the argument that resonates for them,” Schuetz says. ●

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2022 Top Mortgage Lenders

Hannah Darden — Tue, 31 May 2022 17:00:00 +0000

If 2020 was a successful year for the mortgage industry, then 2021 was triumphant. Record-low interest rates and record-high home prices led to the highest-ever mortgage origination volumes by Scotsman Guide’s Top Mortgage Lenders. These companies set new records while adapting to the ever-changing COVID-19 pandemic, remote work, client migrations and thinning housing supply.

A March 2022 report from Upwork estimated that 4.9 million Americans have moved due to remote work since the start of the pandemic while another 19 million are planning to move for this reason. Now that millions of potential homebuyers have the freedom to live wherever they would like, the market has heated up in new parts of the country. While coastal and dense urban areas are still popular — and homes there are selling fast and for high amounts — many workers have chosen to move to historically less expensive areas like the Sun Belt. In certain cities such as Phoenix, Tampa and Las Vegas, home prices soared by 24% or more from 2020 to 2021, according to a Redfin report.

These migration patterns meant more opportunities for the Top Mortgage Lenders to expand and increase their business across the nation. And they did exactly that, closing more than 6 million loans for an aggregate volume of $1.9 trillion in 2021. This represented an impressive increase of 1.1 million loans and $400 billion in volume from the 2020 production year.

Scotsman Guide’s 10th annual Top Mortgage Lenders rankings is topped by a new name. PennyMac Loan Services LLC took first place on the Top Overall Lenders list with $234.5 billion across more than 789,000 loans. Familiar names, however, round out the remainder of the top five. Second place went to United Wholesale Mortgage (UWM) at $226.5 billion, followed by loanDepot ($137 billion), Newrez LLC ($97.6 billion) and Homepoint ($96.2 billion). Pennymac and UWM each broke records as the first companies to cross the $200 billion marker in these rankings.

The following pages also contain the usual spread of specialty rankings. loanDepot remained in first place on the Top Retail Lenders list at $116.2 billion, a 34% increase from the previous year and the first company to break $100 billion in the retail rankings. UWM remained in first place for Top Wholesale Lenders at $226.5 billion, a staggering year-over-year increase of 65%. Pennymac took the crown in the Top Correspondent Lenders rankings, doing 74% of its business in this category for a correspondent loan volume of $174.6 billion.

Fairway Independent Mortgage Corp. took first place in the Top Non-QM Lenders category at $6.2 billion, followed by Angel Oak Lending at $3.9 billion. The government lending categories also saw a boost in volume in 2021, with rankings newcomer Pennymac sweeping the top spots in the Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) loan categories.

View Rankings

PennyMac Loan Services LLC, No. 1 Top Overall Lender

PennyMac Loan Services burst onto the scene this year, taking the No. 1 spot in Top Overall Lenders in its first year of entering the Top Mortgage Lenders rankings. Doug Jones, president and chief mortgage banking officer for Pennymac, credits his team and recent technological advancements for the company’s wildly successful 2021.

“Looking back, it’s really a mix of having great business partnerships as well as a highly talented team, technological excellence and solid execution,” Jones said.

Pennymac invested heavily into correspondent lending technology as well as its broker platform, pricing engine and internal tools, Jones said. The company’s focus on tech in recent years also helped Pennymac weather the COVID-19 pandemic and the shift to the virtual environment, he noted. Digital infrastructure ensured that borrowers’ needs were “always at the forefront” and that the company never needed to pause the funding of loans. This consistency is part of the “secret sauce” for Pennymac, Jones said.

While big-picture focal points for Pennymac include technology and reliability, along with a healthy company culture and core values, the day-to-day processes at Pennymac are focused on the client. “Our focus is to be great on every loan, for every customer, on every part of the process, every day,” Jones said. “It’s all about executing for the customer.”

Although there has been some economic uncertainty this year due to rising inflation and mortgage interest rates, Jones said that Pennymac is “well-positioned to support our partners and their customers.” His advice for other lenders navigating economic uncertainty? “The best way to navigate uncertainty is to rely on fundamentals,” Jones said. “It’s back to basics.”

Doug Jones

President, PennyMac Loan Services

Overall volume soars upward yet again

The Top Mortgage Lenders did more business than ever in 2021, closing more than $1.9 trillion in loans. This represented a 30% increase from last year’s $1.5 trillion in loans, and an impressive 205% increase from only five years ago, when aggregate loan volume was slightly more than $635 billion.

The 100 lenders on this list also closed more loans than ever at 6 million, a 23% increase from the 2021 rankings. And the competition has heated up for the No. 1 Top Overall Lender spot as the total loan volume for the winning company in this category has soared by 337% in the past five years.

Remote work has permanently altered the homebuying process

The rise of remote work during the COVID-19 pandemic has led to major changes in mortgage borrowing. According to the 2022 Borrower Insights Survey from ICE Mortgage Technology, nearly 75% of borrowers believe that an online mortgage process is easier than an in-person process. Many homebuyers have relocated during the pandemic (with Sun Belt cities such as Phoenix, Dallas and Orlando seeing the most in-migration) as remote work has allowed them to look further afield for their dream homes. Among homeowners who relocated for work over the past two years, 61% reported that the ability to work remotely was the main driver for their move.

This has driven a surge in technology as Realtors and originators have developed ways to remotely sell homes and close loans. Digital mortgage processes are especially important to millennial and Generation Z borrowers, who reported that their choice of lender was strongly influenced by the availability of online applications, document portals and mobile apps.

Only three years earlier, the ICE survey indicated that 52% of borrowers used an online application, but this share jumped to 64% in 2021. As mortgage applications have shifted into the digital space, lenders also have become increasingly responsive. Seven in 10 surveyed borrowers said they were contacted by their lender within 12 hours of submitting an inquiry, a sign that lenders are taking advantage of digital tools to streamline their application processes.

Despite rate hikes, home-price growth stays strong

U.S. home prices rose by 1.6% on a monthly basis this past January, a slight increase from the 1.3% growth in December 2021, according to the Federal Housing Finance Agency’s House Price Index (HPI). Year over year, home prices for purchase transactions closed through Fannie Mae and Freddie increased by 18.2%, driven by strong demand and limited supply.

Rising prices differed across the nation’s census divisions, with monthly increases at this time ranging from 0.1% in the New England region to 2.2% in the South Atlantic states. From January 2021 to January 2022, the lowest price increase was in the Middle Atlantic region (at 13.3%). During the same period, prices rose by 23.1% in the Mountain region.

“Rising mortgage rates in January certainly reflect a major change from the past several years, but lending costs remain relatively low,” FHFA supervisory economist Will Doerner said in the HPI report. “The mortgage rate shift has not dampened upward price pressure from intense borrower demand and limited supply.”

Large states power increase in VA loan volume

Home loan volume through the U.S. Department of Veterans Affairs (VA) soared across the nation in 2021. More than 1.4 million loans totaling $447.2 billion were closed, a 19% increase from the 2020 volume. According to data from the VA, California led the pack in 2021 with $64.8 billion in VA loan volume.

Virginia, Florida and Texas followed, with each state’s volume topping $34 billion. Washington, Colorado, North Carolina, Arizona, Maryland and Georgia rounded out the top 10, with each of these states reporting more than $16 billion in VA loan volume.

While California’s high home prices and large population led to the highest overall VA lending volume, it came in third for average loan size. Washington, D.C., was No. 1 in this category with an average VA loan size of $616,518 while Hawaii was No. 2 at $588,199. California’s average VA loan size was $458,361.

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The much-maligned manufactured home wants more respect

Jeff Bond — Tue, 31 May 2022 17:00:00 +0000

After nearly two decades working with the manufactured-housing industry, Dave Anderson is aware of the disparaging things people say about this sector. The executive director of the National Manufactured Home Owners Association, which advocates for manufactured-home owners, says that the negative attitudes many people have toward manufactured homes and the parks they inhabit are something akin to prejudice.

“It goes beyond even a stigma or stereotype,” Anderson says. “Some of it carries over into individual opinions that people hold and then express interpersonally.”

Anderson, who is a polite Minnesotan, remains diplomatic. But it can be inferred what he’s talking about. After all, the term “trailer trash” is a pretty well-worn phrase. Anderson mentions media reports he’s seen where people had no qualms about being quoted that crime comes from manufactured-home parks. Another comment Anderson remembers involved a homeowner who was decidedly against having manufactured homes in his neighborhood. The man said that he didn’t spend $350,000 on his house to look at a trailer.

We should be allowed to have manufactured homes placed in the same residential districts where other homes are located.

– Lesli Gooch, CEO, Manufactured Housing Institute

These attitudes appear well-ingrained in many communities around the country. The irony is that at a time when so many are lamenting the lack of affordable housing for middle-class and low-income families, manufactured housing — the ugly duckling of the housing industry — could be one of the ways to reduce the gap. But this much-maligned housing type may not get the chance.

First, some context. According to the Manufactured Home Institute (MHI), an advocacy group for all aspects of the industry, there are about 8.4 million manufactured homes in the country, housing an estimated 22 million people. Last year, nearly 106,000 manufactured homes were delivered — and demand is strong. The kicker is that while prices are rising fast, they are still far less expensive than a site-built home. Prices for a new manufactured home in 2021 range from about $72,000 for a smaller model to about $130,000 for the more expensive versions. According to Federal Reserve data, the median sales price of a new site-built home was $436,700 as of this past March.

Lesli Gooch, CEO of the Manufactured Housing Institute, says that manufactured homes are subject to the same building codes and standards as site-built homes. MHI estimates that only 27% of these new homes are going into the estimated 43,000 manufactured-home parks located around the country. The other 73% are being placed on private land, usually in rural areas.

These statistics make it clear that manufactured housing is already playing a major role in housing people across the country. The sector also is popular with commercial real estate investors. Green Street Advisors continues to promote manufactured-housing parks as a valuable asset class. The next move is for these properties to be treated like any other type of home and to be allowed in residential neighborhoods. But this appears to be meeting resistance.

“I would argue our biggest challenge is with respect to zoning and trying to get more opportunities to place our homes where single-family homes are also permitted,” Gooch says. “That’s something that we’ve really been advocating for. We should be allowed to have manufactured homes placed in the same residential districts where other homes are located.”

Both Anderson and Gooch emphasize that new manufactured homes are of the same quality as site-built homes, and they often include the same amenities. They also note that since 1976, when the U.S. Department of Housing and Urban Development began overseeing the sector, manufactured homes have been built to the same quality and safety standards as site-built homes. That’s not to say there aren’t honest concerns that residents have about this type of housing, including debates as to whether manufactured homes appreciate in value in the same way as site-built homes and how long manufactured homes last. There also is a fear that having a manufactured home in a neighborhood could lower the property values for everyone else.

The Federal Housing Finance Agency reported in 2018 that the appreciation of manufactured housing is generally in line with other types of homes. LendingTree reported that the median value of a factory-built home increased by 39% from 2014 to 2019 — 6 percentage points higher than the value of single-family homes during the same period.

Gooch says that one of the answers to lowering barriers is to introduce local officials to the modern manufactured home, which she says cannot be distinguished from a site-built home. Gooch maintains that they are just as resilient as other homes in terms of withstanding major weather events.

“Every affordable-housing source has to deal with NIMBYism, right? The whole ‘not in my backyard’ issue affects everyone,” Gooch says. “The way that we need to overcome that is by producing homes where not only are they wonderful and people want to live in them, but that communities want those homes to be their source for affordable housing. These aren’t mobile homes, you know? It’s not your grandma’s trailer.” ●

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David Howard, National Rental Home Council

Jeff Bond — Tue, 31 May 2022 17:00:00 +0000

The single-family rental-home sector has been expanding fast in recent decades. Currently, there are about 22 million single-family rentals (SFRs) across the country, which accounts for more than one third of rental-housing supply, according to RCLCO Real Estate Consulting.

The prevalence of these homes also has led to controversy, with some objections to corporate investors buying up a number of homes and turning them into rental units. Homeowners say that the practice artificially increases housing costs, hurts minority neighborhoods and may lead to property neglect by absentee landlords. This past April, David Howard of the National Rental Home Council (NRHC), an organization that represents the interests of the SFR industry, spoke to Scotsman Guide about why the industry is not a danger to private homeownership and how it may even be part of solving the nation’s housing-shortage problem.

How large is the SFR sector?

There are about 140 million housing units in the United States, and there are about 22 million (single-family) rental units. So, the rental sector makes up about 16% of the housing stock in the country. The business of renting single-family homes has been around as long as anyone can remember, but it’s only been during the past 15 to 20 years that the industry has coalesced. During the financial crisis of 2007 to 2009, there was a great deal of investor purchasing of homes by both large companies and individuals. By doing so, they essentially created a floor for the rest of these falling property values. A lot of home-rental companies got their start during that period and provided growth for the industry.

There is as much of a crisis in rental properties as there is in owner-occupied properties.

How can this industry help ease the country’s housing shortage?

Housing works best when there are more options for buying, selling, owning and renting. This industry presents itself as another option for housing consumers. Rental homes offer the consumer an option that fits their space needs and their budgetary needs. But there is as much of a crisis in rental properties as there is in owner-occupied properties. In the last five years, the amount of owner-occupied housing in this country has increased by about 10%. The amount of rental housing has only increased by about 2%. One of the ways the industry is addressing this is to build homes to rent. Today, 26% of our members are building their own homes to add to the portfolio. Two years ago, it was just 3%.

What is your response to the criticism that the industry is causing rapid price appreciation by buying many homes and taking them off the market?

First of all, I think the most important point to make here is that companies are creating single-family rental units because there is a demand for those units. If there wasn’t the demand, you wouldn’t see them buying the homes for rent. Also, I would like to see any kind of research that shows a definitive connection between large companies buying homes and home-price appreciation. Our member companies control 300,000 homes. That is 0.2% of the overall housing stock in the country. When you own such a small amount of anything, you really have no ability to impact pricing.

What would you say to those who worry that absentee landlords will cause properties to be neglected?

In terms of issues such as property upkeep, member companies of the NRHC in 2021 invested more than $2 billion in property upgrades, renovations and improvements of their properties. So, it’s clearly the case that companies are making significant efforts to preserve the quality of their properties. And I would argue that in many cases, the properties owned by our member companies are even of a higher quality because of those investments and because of their professional management services.

How do you respond to criticism that corporate landlords target minority neighborhoods and potentially destabilize these poorer communities?

I would say that as a practical matter, there are fair-housing restrictions that prevent any homeowner or any investor in housing from targeting communities based on race or ethnicity. The U.S. Department of Housing and Urban Development also has rules preventing single-family rental-home companies, in this case, from even knowing the [prevalent] race or ethnicity of the communities in which they are investing. Secondly, I would say rental companies are making purchases and making rentals available in communities where there is the highest and greatest demand. And that’s really what this is all about. Companies are investing in communities where people want to live, whether they want to own or rent. ●

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Seeking answers to the affordable-housing riddle

Jeff Bond — Wed, 30 Mar 2022 23:19:16 +0000

Shekar Narasimhan is a man on a mission against one of the nation’s seemingly intractable problems — affordable housing. A national expert on the issue, Narasimhan is the managing partner of Beekman Advisors in McLean, Virginia, which provides consulting services in various real estate fields, including affordable housing.

Narasimhan defines the nation’s housing crisis in the following terms: About 20 million people in the U.S. are paying more than 50% of their monthly income for rent. This is unsustainable, he says. These working people are being forced to choose between an apartment and paying for transportation, health care, child care and — in extreme cases — food.

“It’s crazy that we are in this situation where we have no idea how those 20 million people are going to be able to afford to live,” Narasimhan says.

The problem of America’s rising costs of living is certainly not new. But in recent years, it has become ever more acute. In January of this year, the average U.S. apartment asking rent rose to a record $1,604. For a low-income family, this level of rent is forcing them out of the city. They must live farther away from where they work. And they are more likely to be sicker, hungrier and poorer.

You are going to have to do things that are pretty remarkable, things that have never been done before, to solve affordable-housing issues.

⁠— Shekar Narasimhan, managing partner, Beekman Advisors

The real estate and mortgage industries know there is a crisis and are working to find solutions. The Mortgage Bankers Association (MBA), for one, is promoting affordable rental housing and minority homeownership with a variety of projects and initiatives. From a policy perspective, they are promoting the passage of the Biden administration’s Build Back Better legislation, which would expand access to federal subsidies that will enable the construction and rehabilitation of an estimated 1 million affordable rental-housing units along with another 500,000 homes for low- and middle-income homebuyers.

Katelynn Harris Walker, the MBA’s associate director for affordable-housing initiatives, says that her organization also is looking at ways to reduce the time to complete an affordable-housing project by streamlining the “soft” or gap financing, such as grants and subsidies. Currently, it can take five to 10 years to finalize the funding for these projects.

“One of the things we have been advocating strongly for is strengthening the low-income housing tax credit program, which is the No. 1 tool for expanding affordable multifamily housing in the United States,” Walker says.

While Narasimhan agrees that these policies are needed, he also believes that this problem is so large, the industries will have to start thinking differently to find answers. “You are going to have to do things that are pretty remarkable, things that have never been done before, to solve affordable-housing issues,” he says. “You are going to have to think outside the box.”

For Narasimhan, outside-the-box thinking includes innovations in the construction of houses and apartment buildings. He advocates for new technology that can build structures in ways that take a fraction of the time that is currently required. For instance, construction-scale 3D printing could be used to build the walls of a home with a concrete mixture while traditional construction is used for the foundation, roof, windows, wiring, plumbing and finishes. This technology is still new, but it has promise and may be able to build structures more cheaply and in a fraction of the time.

Another idea is to use prefabricated modular housing units. These techniques have been around for years but has yet to really catch on in the U.S. In China, however, this form of construction has resulted in a building revolution, where 10-story apartment complexes can be completed in less than two days.

Certainly, these types of construction may not be quite ready for primetime yet. MBA’s Walker says such construction methods are fascinating innovations and need to be studied, but she doesn’t know if building prefabricated apartment complexes would gain approval from the safety and regulatory bodies that oversee construction projects at the state and local levels.

Narasimhan says that city zoning laws also have to be changed to lower barriers for affordable-housing projects. He wants more cities to follow the lead of Minneapolis, which in 2018 eliminated single-family zoning and opened up neighborhoods to allow homes of up to three units to be built on any residential lot.

This type of change is controversial, with many residents opposed to higher density and homeowners worrying that such a plan will lower their property’s value. Despite the fact that many reports have shown that these zoning changes won’t lower home values, Narasimhan recognizes that these plans irk the not-in-my-backyard crowd.

“You have people who will always be against increased density,” Narasimhan says. “Even if the project doesn’t look, smell or feel like affordable housing, it doesn’t matter.” ●

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Senior housing is experiencing a speedy recovery

Lu Chen — Mon, 28 Feb 2022 18:00:00 +0000

Looking back at 2021, Moody’s Analytics Reis data shows that the performance of all major commercial real estate sectors were on the rise. The multifamily housing sector posted record-breaking rent growth for the year. The office and retail sectors appeared to be evolving, given changes in the appetites for these properties. The industrial sector, which greatly benefited from the boom in e-commerce, weathered the waves of COVID-19 variants. And the recovery for hotels beat expectations as the national occupancy rate and average daily rate rose quickly amid rising inflation.

Meanwhile, as expected, the senior-housing sector also had quite a ride through the second year of the pandemic. Senior-housing residents were especially vulnerable when COVID hit, as many have preexisting medical conditions that make this group much more prone to severe or deadly infections.

As COVID cases quickly spread across these communities, they triggered concerns for residents and caused staffing shortages, so the demand for senior housing cooled instantaneously. The net absorption rate, which measures the number of residents moving in versus those moving out, flipped to negative territory in second-quarter 2020 and erased all gains for 2019 in a matter of three months.

Market stress continued to be elevated until vaccines were made available to the 65-and-over population. The U.S. senior-housing vacancy rate peaked at 17% in Q1 2021 — nearly double its five-year, pre-pandemic average. Due to vaccine mandates among residents and staff members, the demand for assisted- living, independent-living, memory-care and skilled-nursing facilities quickly strengthened starting in Q2 2021. Net absorption for this sector increased by nearly 300% from the second to the third quarters of last year, reaching its highest level in our nearly 10-year tracking history.

Over the course of 2021, the national sector recouped more than one-third of its occupancy losses from 2020. At the same time, a quick pickup in demand coupled with rising expenses for care served as a tailwind to propel rent growth. Annualized growth in asking rents across all four types of care facilities ranged from 1.5% to 2.1% in 2021 versus 1.3% to 1.4% in 2020. According to Senior Housing News, accelerated rent growth was mainly driven by higher wages and difficulties in attracting and retaining qualified workers to this industry.

On the supply side, the construction pipeline tightened as a direct result of increased investor caution around senior housing due to weakness in sector fundamentals, labor shortages and supply chain disruptions. Total completions were down 38% from 2020 to 2021 while the 16,053 units added last year was the lowest number since 2014. A strong rebound in demand along with weak inventory growth pushed down the vacancy rate to 15.3% at the end of 2021, which was much higher than its pre-pandemic level of 10%. Three straight quarters of declining vacancy rates, however, clearly signaled a recovery in motion.

At the metro level, each of the 100 largest U.S. markets saw vacancies move away from their respective pandemic-era peaks. Memphis and Springfield, Massachusetts, recorded the two largest vacancy declines among these cities in 2021. New York City, San Francisco and Albany, New York, had the lowest vacancy rates in the senior-housing sector at the end of last year.

Across the sector’s four segments, memory- care facilities have been under the most pressure since 2020. Due to more requirements for specialized living designs and trained staff, memory care has gone through more challenges and has lagged the other three senior-housing segments, recording the highest level and steepest increase in its vacancy rate. At the other end of the spectrum, independent-living facilities have been more resilient during the pandemic, leading the sector’s overall performance with the lowest vacancy level and sharpest vacancy decline.

COVID-19 cases, ongoing staffing shortages and supply chain disruptions remain important factors that continue to drive short-term supply and demand in the senior-housing sector. Two years into the pandemic, improved safety protocols are resuscitating demand for these properties while the “Great Resignation” and high costs for construction materials are weighing down inventory growth. ●

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