Blog Insights

Over the past few years, U.S. housing affordability has significantly worsened. The aftermath of the Pandemic Housing Boom saw home prices soaring, mortgage rates more than doubled, and the cost of repairs, insurance, and property taxes also shot up. That’s all led to fewer people being able to afford to buy homes, and as a result, homeownership has decreased in some markets. With higher financial barriers to buying a home, in many markets, a larger share of households have turned to renting instead. This bump in rental demand presents potential opportunities for real estate investors, particularly in metros where renting has become more prevalent. To see which markets are more primed for investor activity, LendingOne analyzed year-over-year changes in the rental share of housing units—or “rentership”— across the 75 largest metros by population. LendingOne’s Topline Findings: 47 of the largest 75 U.S. metros saw year-over-year growth in their rental share. Renting remains the most popular in the most expensive housing markets, namely San Jose, Los Angeles, and New York City The metro areas that made the biggest year-over-year rental share gains were Toledo, Cape Coral, and Minneapolis.  Top Five Metros with the Most Rentership Growth Year-Over-Year:   Toledo, OH (+8.7 percentage points) Cape Coral-Fort Myers, FL (+8.5 percentage points) Jacksonville, FL (+7.7 percentage points) Minneapolis-St. Paul-Bloomington, MN-WI (+7.7 percentage points) Portland-Vancouver-Hillsboro, OR-WA (+7.0 percentage points) Annual Shift in the Share of Local Households that are Renters Population Growth and Housing Trends In general, most markets see both the number of homeowners and the number of renters increase over time as the overall population ticks up. However, if the pace of renter household formation significantly outpaces owner household formation, then that could indicate a deterioration in home affordability in that region.  Affordability Pressures in Growing Renter Households While populations tend to grow across both renters and homeowners, when renter household formation significantly outpaces owner household formation, it signals that home affordability is deteriorating. In metros like Toledo and Cleveland, home prices have outpaced wage growth, making homeownership increasingly difficult.  In places like Jacksonville and Cape Coral, soaring home insurance premiums and condo HOA fees are pricing out many would-be buyers, causing the share of renters to rise.  Consistent Trends in High-Rental-Share Metros Despite these shifts, the metros with the highest rental shares remain largely consistent, reflecting long-standing trends in affordability. The most expensive markets, with limited housing supply, tend to have the highest rental share. Meanwhile, more affordable areas with room for new development typically see lower rentership rates and higher homeownership. Five metros with the largest rental share in Q3 2024: San Jose-Sunnyvale-Santa Clara, CA (52.0%) Los Angeles-Long Beach-Anaheim, CA (50.8%) New York-Newark-Jersey City, NY-NJ-PA (49.1%) San Diego-Carlsbad, CA (48.0%) Fresno, CA (47.4%) Five metros with the smallest rental share in Q3 2024: Cape Coral-Fort Myers, FL (21.8%) Charleston-North Charleston-Summerville, SC (23.7%) Columbia, SC (24.5%) Allentown-Bethlehem-Easton, PA-NJ (27.2%) Detroit-Warren-Dearborn, MI (28.2%) Share of Local Households that are Renters Big Picture: As housing affordability conditions worsened over the past few years, the share of renting households has ticked up a bit in some markets, creating opportunities for investors.

If you’re getting started as a real estate investor, you may have heard about the BRRRR method. BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat and is a popular five-step investment strategy. The BRRRR method involves purchasing distressed or undervalued properties, renovating/rehabbing them, and renting them to tenants. Once rehabbed and rented, the property gains value, which the investor can leverage to refinance, using that money to purchase another property so they can repeat the process. Let’s dive into each step of the process and talk about the advantages, challenges, and financing options investors should know before getting started.   What is the BRRRR Method? One of the prerequisites to the BRRRR strategy is that the property is purchased below market value. This is an essential component, as you’ll need to build enough equity to recover your original investment quickly. Here are some points to consider in each step in the BRRRR method:   Buy Step 1 in the BRRRR method is Buy. You’ll need to identify a suitable property first. Ideally, it will be one that requires some upgrades but still has desirable qualities that make it worth the investment. Potential is key! A distressed property in a great location is one example, or perhaps a building that’s under foreclosure or bank-owned. Be sure to conduct a thorough inspection before you commit. A good rule of thumb is not to purchase any property for more than 70% of its post-rehab value. That gives you a 30% buffer for repairs, and you’ll still have enough equity for a refi when you’re done. This is occasionally called the 70% rule or the maximum allowable offer (MAO). MAO is the maximum you can pay upfront and still make a profit. Other metrics investors typically use to evaluate deals include the after-repair value (ARV). You can estimate this amount by adding the added value from the repair to the purchase price or by looking at similar properties in the area to gauge the fair market value. So, for example, if your ARV is $750,000, your MAO is $525,000. Rehab Once the deal is completed, it is time to start on step 2 of the BRRRR method: rehabbing the property, upgrading, and repairing it so it’s ready for tenants. Upgrades could be purely cosmetic or more extensive, but the ultimate goal is to make it a desirable place to rent. Choose your upgrades based on what will give you the most bang for your buck. Updating bathrooms and kitchens, finishing basements, new paint, and refinishing floors are just a few examples. Rent When your property is ready to occupy, you’ll move on to step 3 in the BRRRR process: finding suitable tenants.  Rental income covers your expenses, so do your due diligence to ensure they will make good tenants who will stay long-term. The rent should be enough to cover your mortgage payments with some profit on top of it. Keep your property maintained, be a responsive landlord, and keep the lines of communication open. Refinance Once your property is occupied and income-generating, it’s time to refinance. In step 4 of the BRRRR process, you’ll want to use the equity you’ve built in the property as collateral, and pull out of your initial investment plus whatever additional equity there is so you can repeat the process with a new property. You’ll need to have owned the property for a minimum period before you can refinance, replacing the existing mortgage with a new one at more favorable terms. In the case of a cash-out mortgage, the refinanced amount will be more than what’s owed, and you will receive the balance in cash. Repeat The fifth and final step in the BRRRR method is to use the funds you received through your refinance to go back to step 1 and start the process over again. The goal is to keep repeating this same strategy as you build out your overall portfolio for more profit and better returns.   Advantages of BRRRR for Investors The BRRRR method is an excellent way for investors to scale their portfolios—as long as the variables are in your favor. The main benefits of the BRRRR method are: Requires minimal investment. If the property is undervalued enough and you can do most of the rehab work yourself, there is massive profit potential. High ROI. Depending on what you paid for the property, there’s excellent potential for generating a high return on your investment over time. Easily scalable. The steps are easy to follow, and if your first property was a success, you’ll have learned from the process and will know what you’re facing for future investments. Great passive income potential. If you find great tenants, you’re in a good position to achieve steady cash flow. Equity building. As you build equity through the rehab process, you could net better interest rates, lower payments, and more buying power that you can leverage into new investments.   Challenges of the BRRRR Method Sometimes, it isn’t so easy to lock into the right circumstances with BRRRR. Here are some of the challenges you could face. Finding the right property isn’t always easy. The success of your BRRRR strategy hinges on purchasing the right property at the right price. Careful evaluation is essential to ensure your efforts and investment are worthwhile. It’s speculative. There’s always a chance you won’t find suitable tenants, or the property won’t gain value, putting your investment at risk. It’s hard work. Managing rental properties isn’t for everyone. It can be extremely time-consuming and stressful, especially with multiple properties or tenants. All the pieces need to be in place to ensure success. High up-front costs. You’ll need to ensure you can cover the down payment, renovation costs, and operating expenses until the property is income-generating, which could be a barrier for some investors.   Financing Options for the BRRRR Strategy You have a few options for financing your BRRRR strategy, but a fix to rent loan is recommended as it is tailor-made for BRRRR. Fix to Rent loans are essentially two loans in one. Investors start with a fix and flip loan that covers both the purchase and repair costs of the property. Once the rehab is complete and the investor is ready to rent the property long-term, you have the option to roll into a 30-year fixed-rate rental loan. Working with the same lender when you are ready for the refinance can prove beneficial as they already have your documents on file, you are familiar with your loan advisor, and they may offer incentives for continuing to work with them. Ultimately, this is a fast and simple solution for investors looking to purchase income properties they intend to own long-term, which goes to the heart of BRRRR. Speak to a loan advisor to see if you qualify for a fix-to-rent loan.   Final Thoughts on BRRRR Real estate investing is an excellent way to build wealth and equity, and the BRRRR method may be what you need to achieve your investment goals. Choosing the right financing partner is critical, as success hinges on the right rates and terms. The qualified lending advisors at LendingOne will work with you to ensure you have the best financing vehicles to get you where you want to be. Contact us today, or take a moment to request a quote. We specialize in real estate investment loans and are here to help. 

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.