2021: A Year in Review
The pandemic induced yet another year of staggering change in housing. While house prices and rents continued to surge, private lending industry players were relatively quick to adjust by transitioning from bridge to term lending products. While technology was already disrupting real estate transactions, covid acted as an accelerant, bringing about fundamental shifts in where we buy, how we buy, and even why we buy houses. It was a landmark year for Roc Capital. We closed a record number of loans, started a title company and AMC, and released our white label portal in beta, all in service of the 360 concept for our clients. We also broadened our product offerings, primarily on the term side, and now have a full range of short to long term loans that cover all housing from single family to condos to multifamily buildings. Check out our newly redesigned website for our full range of products and services. We could not have done any of this without our clients so–thank you. Here’s to a prosperous 2022!
Highlights
A year of extremes
Surging HPA (house price appreciation) and rents; the cities come back while the high end hits new highs; labor/housing shortages; transitory/spiking inflation; virus abates/surges, crypto rallies/falls; big stimulus push (much smaller result); big tax hike expectations (much more practical compromise). This backdrop certainly kept us on our toes while the market briskly climbed a wall of worry.
Bridge loan headwinds
As the world economy came roaring back, the supply chain wasn’t able to keep up. Lumber and other material prices surged, or simply were unavailable. It was difficult to find qualified labor. Investors found it nearly impossible to source real estate in the face of supply shortages, lack of willingness of people to sell, and foreclosure/eviction moratoriums.
Rental loan tailwinds
Record low interest rates, rising rents, and rising housing prices created a buying frenzy and ‘refi boom’ for landlords with cash flowing properties. Pricing tightened close to agency loan levels yet without the tedious constraints and underwriting. The total addressable market is enormous and this trend has legs, rate increases notwithstanding.
Conferences undeterred
Build for rent “fever”
Housing shortages and work-from-home trends paired with growing demand for suburban living make this the topic du jour. The consensus seems to be that it has legs, but does anyone really understand the permanence of such trends and how much inventory will hit the market all at once?
Zillow Offers goes bust, some negativity on housing
Perhaps buying houses should be left to the experts (our borrowers!)? In the meantime, luxury house prices continued to surge.
Looking ahead to 2022
Brace for volatility!
Will the Fed overcorrect or undercorrect? What are the chances they get it just right? Will the omicron variant cause additional supply chain and inflationary issues? Will markets suddenly acquire a fear of heights? Whatever happens, we think this year will have some market related minefields that we’ll need to cross. Best to focus on lending strategies that work better in a higher rate environment and make sure that capital is locked.
Affordability is still decent and in line with pre-Covid levels–but it's all about interest rates
Despite major positive HPA, affordability is still not far from where it was in 2018 because incomes are higher and interest rates are lower. The housing market also remains backstopped by a lack of supply and the “Fed put” – the idea that the Fed is likely to step in if markets were to show major signs of weakness.
Bridge loan headwinds likely to abate; rental loan tailwinds likely to lessen
The good news is that the headwinds of 2021 are likely to abate as foreclosure/eviction moratoriums wind down, the supply chain finds some equilibrium, and housing markets cool, creating more of a buyer’s market. The tailwinds for long term loans will likely lessen as rates rise, but in the scheme of things, the size of the lending opportunity is so many magnitudes larger than for bridge loans.
