Blog Insights

This week, LendingOne analysts researched county-level home insurance premium data to determine how premiums vary for homeowners and single-family investors nationwide. Key Findings: A Surge in Home Insurance Premiums Among the largest 500 U.S. counties, more than half (256) saw their median annual home insurance premiums increase by 25% or more from 2020 to 2023.  Home insurance premiums are highest in coastal Florida counties at-risk for severe climate events Home insurance premiums are the lowest in more affordable regions, such as counties in Pennsylvania and Maine, which also have lower risk for climate-related damage Counties with the Highest Home Insurance Premiums in 2023 Among the 500 largest counties, these five had the highest median annual insurance premiums in 2023. Monroe County, FL → $7,608  New York County, NY → $7,148 Broward County, FL → $5,575 Orleans Parish, LA → $5,546 Miami-Dade County, FL → $5,444 Counties with the Lowest Home Insurance Premiums in 2023 Among the 500 largest counties, these five had the lowest median annual insurance premiums in 2023. Penobscot County, ME →  $887 Washington County, ME → $898 Erie County, PA → $949 Beaver County, PA → $1,004 Westmoreland County, PA → $1,015 Median Annual Home Insurance Premium in 2023 The Impact of Climate Risk on Home Insurance Premiums Home insurance premiums tend to be higher in areas prone to climate-related damage. So, it’s unsurprising that insurance premiums remain highest along the Southeast coast, where homes can see significant damage from tropical storms and hurricanes. However, premiums are also high in central states like Oklahoma, Nebraska, Colorado, and Texas, due to damage caused by wind, thunderstorms, wildfires, and tornados.  Alternatively, rural, more affordable counties with less severe climate risk—mostly across the Midwest and Northeast—see the lowest median annual insurance premiums.  Pandemic Housing Boom and Insurance Costs But high insurance costs aren’t just due to climate risk. Home prices and construction costs skyrocketed during the Pandemic Housing Boom, and with them, the cost of home repairs and renovations also rose. This prompted insurance companies to raise premiums to keep up with elevated replacement costs. LendingOne analysts found that 55 of the nation’s 3,000 plus counties saw their median insurance premiums more than 100% in three years.  Counties with the Largest Premium Increases (2020-2023) Among the 500 largest counties, these five counties saw their median annual insurance premiums grow the most from 2020 to 2023: Prince William County, VA: +150.1% St. Tammany Parish, LA: +117.8% Cook County MN: +104.8% Oneida County ID: +95.2% Calcasieu Parish LA: +90.8% Change in Median Annual Home Insurance Premium from 2020 to 2023   A lot of the biggest jumps in median annual insurance premiums happened in Florida and Louisiana. Those two states have high hurricane risk, of course.  Big Picture: Home insurance premiums have spiked across much of the country, and in some markets, particularly in Louisiana and Florida, they have cut into single-family landlords’ cash flow.

If you’re a landlord or considering purchasing a rental income property, consider a debt service coverage ratio (DSCR) loan to fund your next purchase. DSCR loans are specifically designed to finance rental properties and can be easier to qualify for than a conventional mortgage as they leverage the property’s cash flow instead of a buyer’s income, tax returns, and W2. Today’s article will cover the finer points of DSCR loans, DSCR loan requirements, how to qualify, and their flexibility for real estate investors. What is a DSCR Loan? DSCR loans are specific to residential income-producing properties and are fast becoming the preferred option for income property buyers. DSCR loans are mortgages secured by the property’s rental income and do not require the buyer to provide the same documentation needed with a mortgage for owner-occupied properties. This feature is especially helpful for self-employed investors who may not have a conventional income stream or have been challenged to obtain financing through traditional banks. Some things to note about DSRC loans: Only properties with one to four units are eligible for DSRC lending, as additional units in the building would classify it as “multi-family.” DSCR eligibility assumes the property is turnkey, meaning it requires no renovation or upgrades and is move-in ready or has an established, reliable tenant. Lastly, the property must be a business asset or income investment, meaning the owner cannot reside at the address. How DSCR Loans Are Calculated DSCR loans are based on a calculation that assesses the potential for the property to cover its expenses. The calculation divides the property’s net operating income (NOI) by its total debt service (TDS) to obtain a number less than, greater than, or equal to 1.0. Net operating income is calculated by subtracting the total operating expenses from the gross rental income. Total debt service is the total of all debt-related expenses the property must pay. The DSCR ratio is what tells the borrower and lender how much income to debt the property is generating to cover (or not cover) its own expenses. DSCR > 1 means the property is generating enough income to cover its debt DSCR = 1 means the property is just breaking even with enough income to cover its debt DSCR < 1 means the property isn’t generating enough income to cover its debt, posing a greater risk for lenders. Let’s look at an example: What this means is this property is generating $150,000 in income with total expenses equalling $100,000. This results in a DSCR of 1.5, so the property yields 50% more income than what’s needed to cover its debt, making it a more acceptable threshold for a lender to consider financing. DSCR Loan Requirements The criteria for a DSCR loan are vastly different from that of a traditional mortgage. Whereas a bank will want proof of income, a W2, and tax returns and consider your personal credit, a DSCR loan is more concerned with the property’s earning potential. The buyer must provide the property’s current income and expense reports, a verifiable property appraisal, and a credit check. However, DSCR loans have a much less stringent benchmark for personal credit than would be the case with a conventional mortgage. Traditional lenders lean more on the buyer’s credit score and income than the property’s income. DSCR loans turn that equation upside down; though the buyer’s personal credit has some weight, it is a minor factor compared to the property’s earning potential. DSCR Loan Pros and Cons While DSCR loans are often easier and faster to obtain a mortgage from a bank, there are some caveats to consider. On the plus side, DSCR loans are an excellent option for investors who do not have a traditional source of income. Since they are strictly used for investment, they can help people quickly build a real estate portfolio without having to prove personal income. Many investors find DSCR loans helpful when working with other investors as they allow for a shared ownership, making it possible to borrow in partnership with others through an LLC. Depending on the buyer’s financial situation, there may be drawbacks to DSCR loans. For one, the required downpayment is often higher than would be the case for a traditional mortgage. Higher interest rates, closing costs, and additional fees should also be considered. DSCR loans are considered to be higher risk as they do not require personal income verification, hence, they often come with higher fees. In some cases, there may also be a prepayment penalty, meaning you’re locked into your payments for the loan term. Additionally, buyers may not have the same protection as a conventional mortgage because government agencies do not back DSCR loans. The above point underscores the importance of ensuring the property’s income potential holds up, as cash flow problems may lead to financial distress or foreclosure. DSCR loans are not recommended for properties lacking stable income or in areas with challenging or volatile real estate markets. Is a DSCR Loan Right for You? DSCR loans offer incredible flexibility and are fast becoming the preferred loan vehicle for residential real estate investors today. Working with a lender well-versed in DSRC financing will give you the expertise and options you need to achieve your investment goals. Ultimately, DSCR loans may be a better option for self-employed investors, investment partnerships, or in scenarios where the property’s income potential comfortably exceeds its expenses. However, a conventional mortgage may be a more suitable and affordable choice for first-time buyers or anyone who plans to live at the property. To learn more about the different types of loans available for your next real estate investment, we’re here to help. Contact LendingOne today.

Between 2005 and 2019, the share of single-family homes under construction built expressly for renting rose from 1.9% to 4.5% as the build-to-rent business model slowly gained momentum. Then came the easy-money era during the pandemic, with cash-flush institutional firms looking for ways to deploy capital. By 2023, build-to-rent made up 9.3% of single-family housing starts. While build-to-rent (BTR) single-family home development still represents a small share of all single-family homes being constructed, more BTR communities continue to pop up across the country. To find out which markets are at the front of the pack for single-family build-to-rent development, LendingOne analyzed the latest data.  Our key findings: Build-to-rent is still a growing asset class. Markets in the Sun Belt are driving the bulk of new development. Phoenix and Dallas are the epicenters of the build-to-rent boom.     Build-to-rent investors want to develop in markets where rental demand will remain strong in the long term, seeking high-growth markets with favorable demographics. Younger generations tend to be the primary demographic for single-family rentals, as many would like to live in a single-family home, but are currently priced out of the purchase market.  Some Midwestern markets like Columbus are starting to ramp up BTR development. That said, Sun Belt markets like Phoenix, Atlanta, Orlando, and Southwest Florida are still the big go-tos for BTR developers, due to robust single-family housing demand, sufficient land availability for community development, and their long-term rental outlooks.     While high interest rates have made investors weary over the past couple of years, there is still significant interest in the build-to-rent market.  Look no further than single-family landlord giant AMH (American Homes 4 Rent), which back in 2017 formed its own in-house homebuilder to focus on build-to-rent. Of AMH’s nearly 60,000 single-family rentals, 10,000 are build-to-rent units developed from scratch by its in-house homebuilding team. AMH is now the nation’s 39th largest builder and has another 10,000 units in its build-to-rent pipeline Big Picture: Investor interest in the build-to-rent space remains substantial despite higher interest rates. Build-to-rent single-family rentals continue to pop up across the nation—particularly in the Sun Belt, where the long-term outlook for single-family rentals is strong and there’s room for development.

The Housing Market is at an Inflection Point As we prepare to head into 2025, the U.S. housing market is at an inflection point. We’ve seen unprecedented low inventory levels over the past few years, and we still face a national market defined by limited supply. This inventory scarcity in many markets has kept home prices high, given investors few homes to consider, and made it challenging for single-family investors to find acceptable deals. The good news?  Now that the average 30-year fixed mortgage rate has dropped to 6.08% as of last week, and the Fed has shifted into rate-cutting mode, some homeowners—who might have wanted to sell their home and buy something else over the past two years but didn’t, unwilling to trade their 3% or 4% rate for a 7% or 8% rate—may now consider making the move if rates stay below 6.0%. For single-family investors and landlords, this could create opportunity.  While the market may not be delivering major price corrections, I expect that transaction volumes will increase as rates stabilize. This uptick will foster a sense of optimism in the market. A slight increase in turnover within the existing home market will create more opportunities for investors to find the right deals, even if we don’t experience significant price drops or the same level of rent appreciation we had over the prior years. Moving forward, maintaining realistic expectations regarding proforma rents and expenses will be key for investors as they evaluate the increased inventory to the market. Here are a few expanded thoughts.   Listing Recovery Will Take Time Now that mortgage rates have come off the highs, we should begin to see more new listings. However, it’ll take time/years to get the resale market fully back to pre-pandemic 2019 levels for new listings. Even with mortgage rates coming down slightly, we’re still in a situation where the majority of homeowners are sitting on sub-4.5% rates, and many are unwilling to sell their homes unless it’s necessary. Simply put, the lock-in effect will ease but not disappear in 2025. Total U.S. new listings for sale, by month There are Already More Deals in Regional Pockets Unlike new monthly listings, total active listings—everything for sale in a given month—are already beginning to increase/recover in some areas of the country. Affordability concerns, the end of the pandemic migration boom, and competition from builders using buydowns mean that existing homes are taking longer to sell in certain pockets of the country. For example, Days on Market are increasing in some areas. Much of the increase in active inventory has occurred in pockets of the Southwest and Southeast, which were extremely red-hot during the pandemic housing boom. Homebuyers have already gained more leverage in areas where active inventory is rising. Where active housing inventory for sale is above (purple) or still below (yellow) pre-pandemic levels The Biggest Mortgage Rate Dip is Here–But a Little More Could Come The biggest drop in mortgage rates, with the average 30-year fixed mortgage rate as tracked by Freddie Mac falling from 7.79% in October 2023 to 6.08% as of last week, might already be here. While most of the major research firms still expect some more declines for mortgage rates, they don’t foresee anything too dramatic coming over the next year.  Below is the forecast for the average 30-year fixed mortgage rate in Q4 2025:  Mortgage Bankers Association: 5.80% Fannie Mae: 5.70% Wells Fargo: 5.55% Where the average 30-Year Fixed mortgage rate is predicted to go through the end of 2025   Big Picture As mortgage rates decrease slightly and more inventory enters the market, transaction volume should increase, boosting confidence across the real estate sector, including among realtors, mortgage professionals, and investors. Though significant home price and rent changes are unlikely in 2025, the increase in confidence and transaction volumes should make everyone involved in the market happier in 2025. 

The Pandemic Housing Boom’s ultra-low interest rates and adoption of work-from-home policies boosted home value growth in essentially every U.S. housing market. However, in the current housing market—marked by strained housing affordability—it’s a mixed bag across the country. While national home prices are still inching up slightly on a year-over-year basis, some regional markets are experiencing greater growth, while some others are seeing outright declines in year-over-year home values. To get a sense of how home prices have shifted in the past year across the country, LendingOne analyzed Zillow Home Value Index data to evaluate year-over-year home price growth. Here are LendingOne’s top-line findings: U.S. home prices are up +3.2% year-over-year, with the strongest growth in California, Midwest, and Northeast markets. From June 2023 to June 2024, home prices softened in many metropolitan areas across Texas, Florida, Louisiana, and Alabama—with some seeing outright price declines. Fueled by the ongoing AI boom, San Jose saw home prices grow 12% year-over-year, the highest among the 50 largest U.S. housing markets. Among the 50 largest U.S. metropolitan areas:: The metros with the highest year-over-year home price growth were: San Jose, CA: +12% Hartford, CT: +10.5% San Diego, CA: +9.4% Providence, RI: +7.7% Los Angeles, CA: +7.6% The metros with the lowest year-over-year home price growth were:   New Orleans, LA: -6.0%  Austin, TX: -4.7%  San Antonio, TX: -2.7%  Dallas, TX: +0.4%  Minneapolis, MN: +0.4% It’s worth noting that while Austin and San Antonio are down year-over-year, home prices in those metropolitan areas are still up significantly since before the Pandemic Housing Boom.  Home prices in the metro areas of Austin and San Antonio in June 2024 were still 46% and 38%, respectively, above June 2019 levels, according to LendingOne’s analysis Declines could be on the horizon for more Gulf markets like Tampa and Jacksonville. These metros saw very little appreciation this spring and experienced high inventory growth. Now that we’re in a seasonally weaker time of the year, price growth in these areas could turn negative for a period of time. Or what some investors might consider buying opportunities. Meanwhile, many Midwest, Northeast, and California metros—where resale inventory remains tight—are still seeing above-normal appreciation. Big Picture: After several years of rapid home price appreciation during the Pandemic Housing Boom, the U.S. has seen modest home price growth over the past year. However, the picture varies significantly across the nation. Stay informed with our latest news and advice by visiting our blog. And when you’re ready to take the next step, learn how our loan products can help you achieve your investment goals.

LendingOne analyzed Redfin’s most recent quarterly data for investor purchases to better understand what investors are doing in the housing market right now. LendingOne Topline Findings:  In Q1 2024, the total number of U.S. homes purchased by investors was 47.3% below the levels reached at the height of the Pandemic Housing Boom in Q1 2022. In Q1 2024, the total number of U.S. homes purchased by investors was 0.5% above what investors purchased in Q1 2023. In 2021, investors took advantage of the Pandemic Housing Boom’s favorable buying conditions. Historically low interest rates, stimulus policies, and the shift to remote work boosted investor purchases of homes across the U.S. In metros like Sacramento, Jacksonville, and Atlanta, investor home purchases more than doubled from pre-pandemic levels.  However, this frenzy fizzled out once the average 30-year fixed mortgage rate jumped above 6.0% in summer 2022. The higher rates meant that far fewer homes for sale could generate the returns that everyone from small landlords to larger institutions were seeking. This led to a significant slowdown in investor purchasing activity. Nationally, investor home purchases fell from 83,468 at the peak in Q1 2022 to 43,969 in Q1 2024—a 47% drop.  While total investor purchases are still well below levels seen during the frenzy, the deceleration has let up. Indeed, investors’ purchases in Q1 2024 (43,969) were just a hair higher than the number of U.S. homes investors purchased in Q1 2023 (43,753). And some West Coast markets, where investors had pulled back sharply following the rate shock, have started to see some investors return to the market.     Investor trends vary a lot by market. Among the 40 major metros that Redfin tracks, 18 saw a drop in investor home purchases from Q1 2023 to Q1 2024, while 22 saw a jump.  These five metros saw the most investor home purchase growth year-over-year:   San Jose (+28.0%) Oakland (+22.1%) Minneapolis (+21.7%) Sacramento (+20.2%) San Francisco (+18.6%) These five metros saw the least investor home purchase growth year-over-year:  Cincinnati (-22.1%),  Baltimore (-22.0%)  Providence (-20.2%),  Virginia Beach (-15.1%) Chicago (-14.6%)  While California markets have seen year-over-year growth in investor purchases in the past year, they are still among the markets with the least total investor activity. The reason is that it’s still hard to find cash flow in high-cost markets on the West Coast. Big picture: Recent data from Redfin reveals that investor activity in the housing market remains subdued due to high interest rates and elevated home prices relative to rents. This could change if mortgage rates fall or prices soften.   Stay informed with our latest news and advice by visiting our blog. And when you’re ready to take the next step, learn how our loan products can help you achieve your investment goals.

The Federal Reserve has a dual mandate from Congress: to maintain “maximum employment” and “stable prices.” Since spring 2022, Fed Chair Jerome Powell has focused on inflation. However, with inflation nearing the 2% target and the unemployment rate slightly rising, starting this month—when the Fed is expected to make its first rate cut—the central bank’s focus will likely shift toward employment. While the Federal Reserve doesn’t directly set long-term rates, including mortgage rates, these rates often move in response to anticipated future economic and monetary conditions. In fact, amid recent cooling labor market data and the increased likelihood of Fed rate cuts, mortgage rates have come down slightly in recent months. Last week, the average 30-year fixed mortgage rate tracked by Freddie Mac came in at 6.35%, well below the 7.22% peak reached in May of this year. To find out where mortgage rates and the housing market could go from here, LendingOne analyzed the latest housing market data and rate forecasts. LendingOne Top Findings: Most forecasters expect mortgage rates to fall further over the coming year—but not a huge drop. Despite the recent drop in mortgage rates, turnover in the resale market still remains low.  Refi activity is finally starting to pick up. Future Rate Projections:   Looking ahead, most forecasters expect mortgage rates to gradually come down a bit; however, without a recession, the decrease might not be as significant as some investors would like.  The Mortgage Bankers Association expects 5.9% by Q4 2025.  Fannie Mae also expects 5.9% by Q4 2025.  Wells Fargo expects 5.8% by Q4 2025. If the labor market begins to weaken faster than expected, or the jobless rate spikes, short-term and long-term interest rates could fall faster than expected. While if the labor market tightens up, or inflation picks back up, we could get fewer cuts than currently expected. Will Lower Rates Lead to More Home Sales?   The recent dip in mortgage rates and slightly improved housing affordability have yet to make a noticeable impact on sales activity.  In fact, the Mortgage Purchase Application Index, a proxy for future existing home sales, is still hovering near multi-decade lows.  The first thing to keep in mind is that this mortgage rate dip is occurring during the seasonally soft window. If the mortgage rate dip holds and the job market remains strong, it could lead to more activity in spring 2025.  Another important point is that even with this mortgage rate drop, the “lock-in effect” is still in play, which will slow the bounce back for existing home sales. Many homeowners who would like to sell and buy something else are staying put, rather than facing a higher mortgage rate and monthly payment. Refinancing Gains Momentum   One area that has seen some improvement from the recent mortgage rate dip: Refi. Refinancing has gained momentum as borrowers who secured rates above 7.0% in the past 24 months take advantage of the recent dip for some relief. While this isn’t a refi boom—at least not yet—it does represent an improvement from the multi-decade lows reached during the mortgage rate shock. To really jumpstart the refinancing market and the second mortgage market, the average 30-year fixed mortgage rate would likely need to approach 5.5%. Final Thoughts While we’ve seen a slight dip in mortgage rates over the past year, with forecasters expecting this trend to continue into 2025, investors should remember that predicting interest rates has been especially challenging in recent years. This is due to the lingering effects of the pandemic, lockdowns, record-low rates, massive stimulus, inflation shocks, and the fastest rate-hiking cycle in decades. Stay informed with our latest news and advice by visiting our blog. And when you’re ready to take the next step, learn how our loan products can help you achieve your investment goals.

This week, LendingOne analysts parsed through state-level homeowners insurance data to determine what single-family investors are seeing across the country. LendingOne’s top-line findings: U.S. homeowners insurance effective rates increased 11.3% in 2023—up from a 6.2% increase in 2022. That’s eating into some investors’ rental cash flow.  Last year, homeowners insurance rates increased the most in Southwestern markets. The cost of homeowners insurance has increased the most in Texas since 2018, with a cumulative increase of 60% over the past five years.  The five states with the biggest homeowners insurance effective rate increases in 2023, according to LendingOne’s analysis of data from S&P Global Market Intelligence:  Texas: +23.3%  Arizona: +21.8%  Utah: +20.3%  Illinois: +18.5%  Oregon: +16.5%   It isn’t just a result of climate-related risks. The U.S. has seen particularly high home insurance effective rate jumps in the past couple of years, echoing the spikes in home prices during the Pandemic Housing Boom. Simply put, rising repair and renovation costs have put upward pressure on insurance premiums.   Between 2018 and 2021, only one state (Florida in 2020) experienced a one-year effective rate increase of more than 10.0%. In 2022, six states saw double-digit effective rate increases. In 2023, 25 states saw homeowners insurance rate increases of 10.0% or higher. Big Picture: Single-family landlords are seeing their homeowners insurance premiums rise quickly—and not just in coastal states more prone to natural disasters.

In this issue, you’ll see the full results of the LendingOne-ResiClub Single-Family Rental Investor Survey. Real estate investors who own at least one single-family investment property were eligible to respond to the LendingOne-ResiClub SFR Investor Survey, fielded between June 25 and July 18. ResiClub, our partner for the survey, is a news and research outlet dedicated to covering the U.S. housing market.   Our Topline Findings for the SFR Housing Market: 60% of single-family landlords say they’ll likely buy at least one investment property over the next 12 months.  39% of single-family landlords say they’ll likely sell at least one investment property over the next 12 months.  76% of single-family landlords expect to raise their rents over the next 12 months—including 35% who say the increase will be over 4.0%.  2% of single-family landlords expect to decrease their rents over the next 12 months. 72% of single-family landlords expect home prices to increase in their core housing market over the next 12 months. But only 31% expect an increase of over 4.0%.  86% of single-family landlords expect interest rates to fall over the next 12 months. However, just 10% of those landlords expect a decline of more than 1 percentage point. 50% of single-family landlords say home insurance was their expense that increased the most over the past 12 months   Big picture: The survey reveals that a significant majority of single-family landlords are cautiously optimistic about the SFR housing market over the next 12 months, with many planning to buy properties, raise rents, and anticipate rising home prices and falling interest rates. However, they only expect a mild increase in rents and home prices and a mild drop in interest rates while also reporting that home insurance costs are an area of concern. “The survey result generally aligns with what we have heard from clients and from data over the last 12 months,” says LendingOne CEO Matthew Neisser. “We saw apartment rents starting to stall months ago; apartment rents were already leveling out in most markets and becoming more competitive with concessions. So, on the single-family side, apartments can be a benchmark as a competing product.” “Generally affordability is coming into play on both apartments and the SFR space,” he continues. “It seemed logical there’s only so much rent growth in some of the markets. That being said, clients are becoming more active as inventory starts to rise and rates have improved.” Below, you can find the full results broken down by regional SFR housing market:   How Likely Single-Family Rental Investors Are to Buy Another Investment Property in the Next 12 Months   How Likely Single-Family Rental Investors Are to Sell Any of Their Investment Properties in the Next 12 Months    How Much Single-Family Rental Investors Plan to Raise Rents Over the Next 12 Months   How Single-Family Rental Investors Expect Home Prices to Shift in Their Core Housing Market over the Next 12 Months   What Single-Family Rental Investors Expect to Happen to Interest Rates in the Next 12 Months   “Inventory reached unprecedented lows during and after the COVID-19 pandemic, making it challenging for investors to acquire properties and expand their portfolios due to fierce buyer competition,” Neisser continued. “However, as the market stabilizes, we anticipate increased buying opportunities for our clients. It’s important to note that while significant rent appreciation is less likely in the current climate, investors should still base their purchasing decisions on realistic expectations.” Neisser added that if investors are right, and interest rates come down a bit, even better. “All else being equal, rates coming down is great for our investors, period”   This quarter’s survey uncovered interesting insights about how real estate investors are weathering the current economic dynamics. Stay informed with our latest news and advice by visiting our blog. And when you’re ready to take the next step, learn how our loan products can help you achieve your investment goals.