Home Prices Continue to Rise. The Residential Lending Market is a Great Way for Investors to Participate.

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The Pandemic is further fueling residential real estate demand

We have been writing for some time about the underlying strength in the residential housing market. Now it appears that the Pandemic may be further fueling that strength. “The housing market is, ironically, benefiting from the coronavirus,” said Ralph DeFranco, global chief economist at Arch Capital Services Inc. “We’re seeing just red-hot demand for both bigger homes but also second homes, and also millennials moving into homeownership from rental.”

As reported this month in the Wall Street Journal: “Home prices rose in every corner of the U.S. during the third quarter, as the pandemic boosted activity in a way not seen in recent history. A longstanding shortage of homes for sale has worsened, increasing competition among buyers and sparking bidding wars ( Home Prices are Rising Everywhere in the US).”

Home buyers demand homes with modern amenities

Our thesis at Aloha Capital is that the supply of new construction houses remains crimped, and demand from home buyers continues to be firm. But importantly, the available and existing housing stock for sale is dated and in need of updating. Most home buyers entering the market – particularly millennials – have expectations of purchasing a home with modern features, design and construction.

“Americans are viewing their home as something more than what it was before,” as they spend more time at home due to the pandemic, said Lawrence Yun, NAR’s chief economist. “Right now, there is a greater interest for larger-size homes.” Expect that a great many existing homes will need to be remodeled in order to meet these new consumer buying habits.

‘Fix and Flip’ renovation professionals well positioned in this market

This is a prime market for real estate development and construction professionals skilled at renovating and remodeling older-stock homes. In this environment, we can expect enterprising, disciplined fix and flippers in the right markets to make good returns. We have written about this dynamic in past posts (Almost a Year Later, the Demand for Fix and Flip Still Strong).

Construction of new housing continues to lag the surging home demand. That is not a situation that can be quickly remedied. That translates to more prospective new-construction home buyers needing to enter the market for existing homes. We believe that while home affordability remains an issue, consumers will continue to demand housing stock with updated amenities. Therefore, even in this supply-constrained environment, the fix and flip industry should continue to thrive.

Real estate professionals specializing in renovation construction are the prime borrower for the Aloha Capital lending strategy. Our strategy continues to experience strong demand from Fix and Flip professionals.

Real Estate investors that would like to participate in an investment strategy with a stellar track record and strong underlying fundamentals should reach out to us. We are happy to walk through our strategy and results.

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