Three Market Trends Make a Strong Case for Residential Real Estate Lending

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In early October, Fannie Mae reported their Home Purchase Sentiment Index (HPIS) rose 3.5 points in September, continuing a rapid rebound of consumer confidence in the housing market since the lows brought about by the COVID-19 pandemic. (Fannie Mae: Rapid rebound of consumer housing sentiment continues)”. This increase in consumer sentiment tracks well with the increase in demand we are seeing on the lending side of our business.

The obvious question that remains is how much further consumer demand will grow? Doug Duncan, Fannie Mae’s senior vice president and chief economist said: “Going forward, we believe the wild card to be whether enough sellers enter the market to continue to meet the strong homebuying demand. The home purchase market requires the proper mix of home price growth and continued economic recovery to achieve sustainable levels of housing activity.”

The residential housing market is still experiencing an historical shortage of new-construction homes for sale. As we have written in the past, this shortage of new-construction has significant implications for both potential home buyers and the professional ‘fix and flip’ market (Almost a Year Later, Demand for Fix and Flip Still Strong). The demand for new homes continues to be high and the supply of new-construction housing is at an historical low, meaning more buyers will continue to be pushed into the market for existing homes. We believe the strong trend in demand will remain in place for some time.

Yet home buyers still have high expectations for move-in ready homes with modern amenities. Many of the move-in ready buyers lack the skill or the desire to initiate and manage a major home renovation on their own. This all translates into a continued strong market for professional real estate fix and flippers. These professionals are our partners.  

Here at Aloha Capital, we believe that our fund is well-positioned to profit from three major market conditions. First, strong consumer sentiment in the residential housing market. Second, heightened uncertainty in the commercial real estate market precipitated by the COVID19 crisis. Last, continued stock market volatility caused by COVID19 and election year jitters (In a Volatile Market, Where Can Cautious Investors Go? Don’t Overlook the Comfort and Safety of the Single-Family Home).

These three trends all translate into a strong case for our core business – residential real estate lending to the professional ‘fix and flip’ market.

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