The Impact of 2023 Market Challenges on Lenders and Investors
Despite an unrelenting inventory shortage that would typically buoy home prices, with few exceptions, home prices nationwide began cooling last fall. With several Fed rate hikes driving the cost of mortgages up, homeowners stayed put in their lower-rate mortgages and rate-sensitive buyers paused their house hunting.
For real estate investors, access to capital became increasingly challenging the first half of the year. Capital markets constricted, and many regional banks severely tightened their underwriting, capped loan amounts at a few hundred thousand, or simply paused their construction and rehab lending “until further notice.” Some private lenders left the space altogether.
At Anchor, while others in our industry were pulling back in the first two quarters of 2023, we have expanded lending—and we continue to fund multimillion dollar loans to experienced builders and flippers.
How Experienced Investors Adjusted Their Business Strategy to Weather the Market Challenges
In the markets where home price appreciation stalled, many experienced investors made a pivot from fix and flip to rental, as SFR rental income continues to outperform multifamily rents. Some flip and construction investors took a “wait and see” approach and paused their investing, hoping for more favorable market conditions. At Anchor we saw an increase in investors looking to leverage their available cash with financing in order to maintain or scale their business volume and adapt to a smaller margin environment.
Adjustments Anchor Made to Assist Our Customers
While real estate investors were being denied extensions at other lenders, one of the first things Anchor did was augment and highlight our extension program for borrowers whose exit strategy was impacted by macro market conditions and other events beyond their control. We also lowered rates and increased our LTC for our more experienced borrowers, and we introduced a TruPic inspection option to expedite draw fundings. We heard a lot of feedback around loan amounts as well. Investors looking for higher loan amounts appreciate that we are lending up to $10 million on new construction and flips.
What is Anchor's Market Outlook for 2023 and Beyond?
Market-by-market there remains plenty of opportunity for experienced investors who know how to crunch the numbers and are savvy about what local homebuyers want. For example, according to recent ATTOM data, among the 56 metro areas in the U.S. with a population of 1 million or more, those with the largest gross flipping profits in 2022 were:
- San Jose, CA ($242,625)
- San Francisco, CA ($163,000)
- Washington, DC ($146,728)
- New York, NY (141,332)
- Seattle, WA ($137,664)
Among metro areas with a population of at least 1 million, the cities with the biggest gross profit margins in 2022 were:
- Pittsburgh, PA (114.2%)
- Buffalo, NY (90.7%)
- Philadelphia, PA (78%)
- Baltimore, MD (72.9%)
- Richmond, VA (68.6%)
Keeping an eye on their local market data, experienced investors will keep acquisition costs as low as possible while carefully considering scope of work and holding costs and how they impact ROI. Inexperienced investors who are not skilled at estimating as-is and after-repair value, and do not intimately know their local market will likely struggle now and in the near future.
On the macro level, Anchor and our parent company Pretium are extremely bullish on housing. In Pretium’s May 2023 report, "Long-Term Bullish Outlook for the Housing Rehabilitation Industry," a strong case is made for the future of single-family residential rehabilitation and remodeling. Pretium is also fiercely committed to financing the new construction of affordable housing to ease the inventory and affordability barriers so many Americans face.
What to Expect from Anchor Loans for 2023 and Beyond
Anchor’s market advantage is our laser focus on providing an exceptional customer experience—and our growth strategy is grounded in this core commitment. To that end, we will continue to aggressively build and maintain an infrastructure of excellence—and to attract, train and retain the best leaders, loan originators, processors and servicers in the business.
Our goal is for Anchor to remain the dependable source of real estate investment capital in down cycles as well as up. Across our industry there is incredible destabilization and change. Business purpose lenders have suspended their loan programs because they don’t have cost-effective, long-term funding strategies. In contrast, Anchor has been providing financing to real estate investors for over 25 years and we are backed by a parent company with over $50 billion in assets. We are accelerating lending and expanding operations nationwide.