Challenges in Today’s Real Estate Market [And How to Overcome Them]
It is an interesting time for the nation’s real estate market and investment community. While many investors have been able to leverage the recent record price growth to their advantage, today’s market poses a number of challenges outside of their control.
Fortunately, lenders, investors, developers, and other stakeholders are working on innovative solutions to many of these challenges, which is helping to correct inefficiencies and improve the overall functioning of the market.
To explore this timely topic further, We Lend’s Director of Operations Andrew Schnissel hosted the latest installment of our webinar series where he and the assembled panel of experts discussed the “Challenges in Today’s Real Estate Market”.
Andrew was joined in the webinar by:
- Charles Ruffin - Senior Business Development Officer at Axos Bank
- John Lettera - CEO and founder at RealFi
- Evan Connolly - CEO at Palm Beach AMC
Touching upon everything from the supply chain issues to the current lack of inventory in the market, the panel delved into the biggest challenges facing the industry and what the possible solutions are to these problems. So without further adieu, here are some of the key topics that were discussed in the webinar.
You can also watch the webinar below:
The Appraiser Crunch
The panel agreed that the current appraiser shortage, combined with huge demand for appraisers, was one of the biggest challenges within the current market.
For many investors, ordering appraisals has become a huge focus in the transaction process because of the growing likelihood of delays. While delays in the appraisal process vary depending on market location, the turnaround in some metro areas experiencing high demand can now be between three to four weeks, or even longer in some cases.
These issues, explained Evan Connolly, were largely volume and market-driven. For example, the appraiser population has declined by 12% within the last eight years and that decline is accelerating with many experienced appraisers nearing retirement age.
Luckily, official institutes are now working to tackle this shortage and placing a focus on bringing in the next generation of appraisers. This involved changing the criteria to become an appraiser and developing virtual and technology-based solutions in the training process. It is encouraging that the appraisal industry is recognized as a desirable job for young people, pointing to potential future growth.
However, the appraiser shortage isn’t just being addressed from a workforce standpoint. The growth of desktop and drive-by appraisals represented efforts to speed up the process. What’s more, many large appraisal management companies (AMCs) are making significant investments in technology that is enabling appraisers to improve efficiencies and do more with less.
Supply Chain Issues
Supply chain issues such as a lack of construction materials are also having a tangible impact on the market. While there is a huge demand for new residential units, the global supply chain issues have rippled through the construction industry resulting in price spikes for both labor and material costs.
For example, John Lettera explained that the lending market is not short of construction projects but the bottlenecks in the supply chain such as construction materials and labor have a knock-on effect on disbursements, allocation and extension fees later down the line.
While supply chain delays are often out of our hands, there are several ways in which real estate leaders can work to alleviate the situation. Assisting sponsors and builders to ensure that budget projections are accurate is key. What’s more, working on innovative ways to ensure that less money leaves the developer's pocket can help a construction project along.
It is no secret that there is an inventory shortage across the nation which is having a big impact on property values.
Thanks to low interest rates, the US property market remains a highly appealing avenue for both domestic and international investors. One of the most obvious outputs of this is the gradual rise of institutional investors entering the residential market - this is most pronounced within the single family rental market.
Bidding wars have also contributed to rising prices which is great news for sellers while placing pressure on borrowers and lenders to keep pace. And of course, rising prices can make it more challenging for real estate investors to find deals that represent a good ROI.
However, the inventory shortage should start to be eased, owing to the fact that the federal eviction and foreclosure moratoriums have both come to an end. Therefore, as eviction and foreclosure hearings start making their way through the courts, we’re going to start to see more distressed properties enter the wholesale market and auction houses, providing investors with both more purchasing options and more inventory.
What’s Next For the Nation’s Real Estate Lending Market?
While there are challenges in today’s market, we are certainly feeling optimistic about the direction in which the market is heading.
Charles Ruffin summed this up perfectly in the closing statements of our latest webinar, “Even though we have all these disruptions and issues within our line of work, the great thing is that we are able to work. So the market is busy, we’re keeping busy.
“It might be harder to find transactions here and there, but we are still in a great position in the economy to help our clients, to help our company and to move forward with the mission… for ourselves, for employees. We do have difficulties but it’s a great time to be in our market.”
Here at We Lend, we couldn’t agree more.