I am not a contrarian by nature, however I realized that the current overwhelming doom and gloom does not match some of the current data and the practical reality of our business at Jcap Private Lending.
Below are observations worth noting :
New mortgages for purchasing homes were at a 20 year high in 2021. 2023 is projected to be lower , but to still be in the top 4 purchase years in the last 2 decades …. and the trend is more home sales in the future
In our local market, inventory is low, multiple offers are back, and some sellers are getting over asking price again.
Returning from a National conference this week, my informal survey shows home prices holding steady with the exception of San Francisco, Dallas, Houston, Florida, the ultra High – End, and Rural properties. Texas had an over- supply of new Contruction which they seem to have sold through.
The Effect of Rising rates
Commercial Real Estate takes the biggest hit, as low interest rate commercial loans mature, owners are faced with dramatically higher rates when it is time to refinance. The risk is their properties no longer
cash-flow, which could force them to dump the property. Also, the rise in treasuries forces cap rates in Commercial Properties to rise to compete as investment alternatives — this, of course, hits the value of the asset.
Residential Real Estate is affected by higher rates mostly on the supply side. Home buyers still appear to be employed with high paying jobs. The higher rates means that they now have to pay more monthly for the same house they wanted to buy last year, or they will have to choose something less expensive.
The bigger story is the Residential Real Estate Seller: They are not selling! They have a mortgage rate between 2.5 -3.5%. Rates haven’t been this low since 1953. If they move, buying their same house, their payment is higher. The result : Less supply.
Effects To Jcap Private Lending and you, our Investor
Jcap is halting commercial lending through this cycle. We have a few commercial loans in our portfolio — we are working on moving them along. On the Residential side, we continue to watch geographies to stay “equity safe”. The supply phenomenon caused by historic low rates has caused real estate owners’ equity to increase — also lowering our risk. Our average loan to value in the 1st Cast Opportunity Fund is 56% . This cycle has created a 2nd TD Opportunity to come behind low interest rate 30 yr Fixed mortgages, providing high yield at low leverages for us.
2023 continues to look like a year of opportunity for Jcap Private Lending and for you, our Investor.