Executive on top trends at play in current market
As the 2024 commercial lending market continues to take shape, a familiar challenge has shown little sign of slowing down: lack of inventory meaning a continuing scarcity of residential properties to invest in.
Still, the prospect of lower rates down the line this year – even if those declines are marginal at best – points to opportunity and room for optimism, according to RCN Capital’s vice president of sales Chris Dorin (pictured top).
He told Mortgage Professional America that challenges “on multiple fronts” are seeing available housing supply tick lower, partly because two-thirds of homeowners are on a mortgage of 4% or lower – meaning there’s little reason for them to leave that arrangement for higher rates.
“There’s a lot less financial incentive for people to sell their homes in the first place,” he said. “And if the new home purchase is going to greatly increase your housing costs, you’re probably going to stand pat.
“And for those distressed borrowers who maybe used to have properties that [entered] the foreclosure process, they’re way more likely to have equity in their property now than they used to. So if they’re in a distressed situation, they’re probably selling that home before it reaches a foreclosure point.”
For prospective investors, that can mean “swimming a little further upstream” to secure those deals, Dorin said – finding a distressed borrower and negotiating with them before their property hits the open market.
Despite those obstacles, the likelihood of interest rates dipping later in the year will have a positive impact on the market and investor scene, he added.
“We know the higher-rate environment’s going to impact the market. That ability for folks to finance their cash-flowing properties is going to be greatly impacted by the cost of financing,” Dorin said. “But we’re excited to see those numbers start to come down a little bit this year. It’s going to be a slow kind of decline most likely – it’s [been] a little volatile, the start to the year.
“But our trend is probably closer to the middle point of the year and a little after, we’ll see most of those trends come down on the rates.”
Eric Gasper, VP of Madison Mortgage Services, stresses the importance of looking beyond interest rates and focusing on understanding consumers' situations and goals. https://t.co/iUZyccBMHR#mortgageindustry #interestrates #businessgrowth #mortgagecareer
— Mortgage Professional America Magazine (@MPAMagazineUS) March 4, 2024
Interest rates unlikely to see significant immediate decrease
Still, a word of caution: those rate decreases are set to be slow and steady rather than a dramatic immediate fall, according to Dorin.
“I don’t think people should have expectations that they’re going to be in the 4% to 5% range,” he said. “Something probably closer in the 6% to 6.5% range is a better target for the market there.”
While those declines will be modest, “every little bit” of improvement will help on the investor side, Dorin said, with cheaper capital always going to be welcomed in the market.
Falling rates would likely have the impact of loosening up inventory – and another opportunity that’s arisen in the market this year is new construction picking up, with infill projects in particular beginning to tick upwards as people begin to start building their own inventory.
“If you’re having a hard time finding the property, make your own and get into a different strategy for some investors,” said Dorin of that growing trend. “Those who find the success are going to do well because we see those homes sell quickly.
“Those new construction homes – particularly if you’re building more of that first-time homebuyer style of home – they’ll sell quick. They have an established price point. It’s a market that still has opportunities for buyers and sellers alike, so we see those as very efficient homes that can turn around quickly.”
Opportunities still exist despite challenging landscape
For real estate professionals and investors, it’s essential to understand that amidst the market’s transition of recent years, there are always ways to carve out new opportunity, according to Dorin.
The red-hot market between 2020 and 2022 was replaced last year by a cooler climate as the Federal Reserve began hiking interest rates, with inevitable tougher times arriving for mortgage professionals and their clients.
“What gets you through those tough cycles, where rates are increasing steadily throughout the year, is the service levels that you’re providing to your clients and helping them adapt their strategies to the market that’s in place,” Dorin said.
“If you’re a flipper and you couldn’t find more flip projects, well – what are your thoughts about becoming a rental investor or doing some ground-up projects? It’s not easy to just sit on this job and not do projects. This is your operation. You need to do projects, you need to find opportunities.”
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