Inventory urgently required to boost buyer affordability, VP argues
Many of the ideas being discussed to improve housing affordability involve improving conditions for consumers directly.
Whether it’s longer mortgage terms, reduced fees, or tax and insurance relief, each would have a meaningful impact on affordability.
However, most of the plans suggested so far affect the demand side of the equation. One mortgage executive wants to remind those coming up with solutions that the supply side of the equation must be addressed as well.
Kyle Concannon (pictured top), VP of product and wholesale at Constructive Capital, said meaningful improvements in housing supply are needed to help borrowers take advantage of new demand-side initiatives.
“We need some help on the supply side,” Concannon told Mortgage Professional America. “Like a 50-year mortgage, I’m not thrilled about that. Another thing announced recently: buying mortgage bonds and mortgage securities. That's all the demand side. There's already plenty of demand. People want to own a home, or they want to own a rental. They want the American dream.”
Needing a plan
Concannon said that with President Trump in office, the government has someone at the top who has been in the property investment world. He is hopeful that the president can develop a plan to bring meaningful improvements to the housing supply.
“We have plenty of demand,” Concannon said. “That's not the problem. We need more supply. I'm looking for, like, an FDR New Deal-style housing initiative from this administration, which I think they're capable of. He's probably the biggest real estate investor president we’ve ever had. So I'm hopeful that he's going to do something like that. We need more units.”
While it is important to address the significant deficiency in new home construction, Concannon said it is equally important that the new houses built be affordable.
“If you want to bring prices down and inventory up, we need more housing units,” he said. “We need more houses built every year. I think we're a couple of million short in housing inventory already. So yes, if there's some initiative that applies to the whole US, not just certain geographic locations, because we can see how that can go south quickly. We need fewer regulations so people can just build affordable new construction homes.
“Not everyone can afford that $1 million or $2 million ground-up house as either an owner-occupant or as an investor. But if we can figure out a way to start building affordable housing again in the $300,000 to $600,000 sales price range, that's what I'm looking for. That could really ignite another wave of the housing market.”
Limited fix-and-flip inventory
Concannon said while fix-and-flip can be another great opportunity for investors, the limited existing inventory makes that path a bit harder.
“Fix-and-flip continues to be challenging,” he said. “There's limited inventory. You have to find a property where you'll actually make a profit. So that is challenging, but that's if you have a more savvy borrower, they still know how to find those. You go to the auction, or you go to the auction websites, or you're on the courthouse steps. There are just fewer of those compared to the great financial crisis.”
Because of the limited fix-and-flip inventory, many investors are circling back and considering ground-up construction instead.
“We are starting to see more and more experienced sponsors come back who want to do a new construction loan,” Concannon said. “So maybe I can't find that house that I'm going to flip, but there aren't a lot of people who have the experience to do a new construction loan. So if you are one of them, there are lenders out there where you can get that financing to build a single-family home instead of flipping one.
“We’re starting to see a lot of ground-up construction and fix-and-flip. I think ground-up construction is going to be a big, big part of that. That goes into build-to-sell or build-to-rent, which turns into another DSCR loan opportunity for us. Those markets can be alive and well for a long time, regardless of what rates do.”
For Concannon, it comes back to seeing more construction projects get started. If affordability is going to improve in the long run, supply has to outpace demand. He hopes the government will keep that in mind with housing bills this year.
“We need more units, so that's the biggest thing,” he said. “I don't know what they have up their sleeve. I think there are more announcements to come, but everything I've seen so far is like the demand side. We got plenty of demand. We need more supply. I'm hopeful that there's an announcement here coming soon about how we're going to build many more housing units each year going forward.”
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This article is part of our Monthly Spotlight series, which in January focuses on Affordability. Full coverage can be found here.
