Robert Greenberg is chief marketing officer at Patch of
Land. He is responsible for branding, corporate communications, lead generation, marketing automation and managing integrated-marketing activities. Prior to Patch of Land,
Greenberg led the marketing efforts for B2R Finance, where
he helped originate more than $1 billion in real estate
investor loans that led to the industry’s first-ever multi-borrower, single-family rental securitization. Reach him at
Questions, Not Worries,
Abound in the Housing Market
Originators of hard money loans should understand
the extent of risk for a slowdown
By Robert Greenberg
Hard money borrowers who work in the residential arena generally either buy and hold property to sell later or fix and flip assets as soon as possible. Originators
who work with these borrowers should understand the
vagaries of the housing market and adjust operations
There was evidence of a U.S. housing slowdown by
the fall of 2018. And the nation last year recorded the
worst October for stocks since 2011. But economists
aren’t sounding alarm bells yet.
Some 56 percent of business economists said they
expect the next recession to hit around the end of 2020,
but 33 percent said it could be earlier, according to a
fourth-quarter 2018 poll by the National Association
for Business Economics. Just 10 percent said they
expect to see a contraction as early as 2019, however.
No housing bubble
Rising mortgage interest rates impacted the housing
market this past fourth quarter and will likely continue
to do so in 2019. Well-known housing economist
Robert Shiller told news outlet CNBC, however, that
he doesn’t fear a history-making sharp housing downturn like the one that the nation experienced from
2008 to 2012.
Gross domestic product (GDP), or the total value of
goods produced and services provided for the country,
increased to an annual rate of 4.2 percent in the second quarter of 2018 — before ratcheting down to an
estimated of 3. 5 percent growth mark for the third
quarter of the year. Economists are not in agreement
as to whether the nation is entering a bear market
or simply experiencing a stock-market correction. In
good news for hard money lenders, and the mortgage
market in general, worries of a housing bubble aren’t
part of the conversation.
The U.S. economy was still performing well as of this
past fourth quarter, amid some speculation that the
stock market decline and volatility was being driven
by Federal Reserve policies. The Federal Reserve continued to ratchet up its benchmark federal-funds rate
in 2018, with more rate hikes forecast for 2019.
Economic indicators looked mostly positive in late
2018, with inflation in check and unemployment at the
lowest level in 50 years. Consumer confidence ticked
downward ever so slightly as of the end of this past
October, to 98. 6, according to University of Michigan’s
consumer-sentiment index — which was at 99 at the
beginning of the month.
GDP in 2019 is likely to rise at a moderate 2.3 percent
pace, compared to about 3 percent growth in 2018,
according to Steven Rick, CUNA Mutual Group director
and chief economist. Fannie Mae also has forecast GDP
growth at 2.3 percent for 2019. Fannie noted falling
home sales and softening mortgage demand is ahead,
but so is an improvement in overly tight for-sale hous-
Trade tensions in North America receded following
the announcement of a trade agreement between
Mexico, the U. S. and Canada. Trade relations with China
worsened, however, and present a downside risk for
the U. S. economy, Fannie Mae noted.
If economic forecasters are correct in their assumption of only slight headwinds for housing amid higher
mortgage rates, then growth opportunities should
continue in 2019 for originators who work with hard
money lenders — although they’ll be muted when
compared to recent years. As of this past September,
the National Association of Realtors Confidence Index,
which polls real estate agents, said Realtors believe
conditions will improve for the single-family housing
market over the next six months.
Realtors’ expression of confidence in the housing
market came despite existing-home sales falling in
September 2018 to their lowest level in nearly three
years, a decline attributed to rising rates. Job gains and
increased property inventory are two bright spots for
asset-based hard money mortgage originators.
Those positives translate into more potential homebuyers, especially if inventory gains are made at the
affordable end of the market — where inventory has
been super tight in many markets. This should put
hard money lenders in a good position to continue
making deals in 2019.
Still, increasing competition within the mortgage
market is underway. That, coupled with broader issues
in the economy, will require close monitoring and
well-oiled marketing and customer outreach for hard
money lenders to differentiate themselves and grow
their lending portfolios going forward.
Besides the expected Federal Reserve interest rate
hikes, originators who work with hard money lenders
will need to keep their ears to the ground on geopolitical risks that could impact the mortgage market.
Political divisiveness is at an all-time high in recent
times, and that can translate into tensions and policies
that affect consumer confidence and economic growth.
In addition, originators who work with hard money
lenders must constantly re-evaluate where they stand
in relation to the competition. Most notably, there has
been a dramatic increase in the availability of capital
for real estate investors, most notably from crowd-funding and alternative-lending platforms that offer
fix-and-flip investors options that weren’t available
just a handful of years ago.
A joint study by the University of Cambridge and
the University of Chicago suggests this alternative-lending sector has hit its stride and is poised for even
more growth. One study, the Americas Alternative
Finance Industry Report, predicts continued, steady
growth in most segments of the alternative-lending
market. The sector’s 2016 U.S. market volume of $34.5
billion represented a 22 percent increase over the
2015 mark, according to the report.
Alternative lenders provide a variety of benefits to
the fix-and-flip real estate investor, such as a national
online footprint, 24/7 accessibility and financial backing from deep-pocketed financial firms that provide
a reliable and consistent flow of capital to customers
using alternative-lending platforms.
This growth in alternative-lending platforms will
continue to impact the hard money market and help
to move the industry forward. Is everyone ready? n
“In good news for
hard money lenders,
and the mortgage
market in general,
worries of a housing
bubble aren’t part
of the conversation.”