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Mortgage Insights: Staying Ahead of the Curve in 2023

Homebuyer Education
Mortgage Insights: Staying Ahead of the Curve in 2023

Navigating the Mortgage Maze: Insights for 2023

As we step into 2023, the mortgage landscape is undergoing a transformative shift. Interest rate hikes, market volatility, and banking sector turmoil have created a complex web of challenges for homebuyers and investors alike. But fear not, my friends, for I’m here to guide you through this maze and help you stay ahead of the curve.

Embracing the Resilience of Residential Housing

While the broader real estate sector has faced its fair share of hurdles, the single-family rental (SFR) and build-to-rent (BTR) markets have remained remarkably resilient. As Berkadia’s experts have noted, the underlying fundamentals driving residential housing are exceptionally strong, making it a relatively safe investment. After all, people will always need a place to call home, even in the face of economic turbulence.

Navigating the Ups and Downs: Lessons from the Past

Remember the not-so-distant past when the housing market was on a record-breaking run, with prices skyrocketing from the start of 2021 through the first half of 2022? Well, the party’s over, my friends. The Federal Reserve’s interest rate hike campaign has put an end to that peak pricing era, leading to a sharp decline in transaction volume in the latter half of 2022.

But here’s the thing: even during the Great Financial Crisis of 2007-2009, when home prices decreased nationally, rents as a whole never went negative. As Berkadia’s experts point out, the usually stable rent and predictable cash flow of the SFR and BTR asset classes have made them a haven for savvy investors.

Embracing Change, Adapting to the Times

While the market conditions may have changed, the fundamental appeal of residential housing investments remains strong. Investors are now shifting their focus from short-term outlooks to long-term potential, recognizing the exceptional strength of the underlying market drivers.

Berkadia’s experts have observed a revival of “risk-adjusted returns” and a renewed emphasis on “location, location, location” as the industry gets back to the basics. Investors are no longer solely driven by the desire for quick profits but are instead looking to capitalize on the long-term growth and stability that the SFR and BTR sectors offer.

Navigating the Shifting Landscape: Three Standout Transactions

To better understand the current state of the market, let’s dive into three recent transactions that Berkadia’s SFR and BTR team has successfully navigated.

Havenly Fountain Hills: Capitalizing on High Barriers to Entry

The first assignment involves a 147-unit, cottage-style BTR community developed by Keystone Homes and located in Fountain Hills, Arizona – a top retirement destination for baby boomers. Berkadia’s experts explain that the submarket has a low existing apartment and rental home stock, with a small future construction pipeline of less than 400 units. This high barrier to entry, coupled with a strong resident demographic profile and an average home price of over $1 million, made the asset particularly appealing to investors.

Despite the volatile interest rate environment, Berkadia’s mortgage banking experts in Scottsdale were able to work their magic, leveraging their life company relationships to lock in a crucial rate lock much earlier than typical agency financing would allow. The result? A tremendous outcome for the seller, who received a higher-than-expected sale price, and a trophy asset for the buyer, yielding better than historical norms.

Amber Creek: Capitalizing on Strong Product Offerings and High Barriers to Entry

Next, let’s explore the recent sales transactions of two BTR communities developed by the nation’s largest home builder, situated in the Southwest region. These purpose-built rental subdivisions, each comprising three- and four-bedroom homes with two-car attached garages, demonstrate the continued investor appetite for well-crafted SFR and BTR assets.

Berkadia’s experts note that the strong product offerings and high barriers to entry in the Thornton, Colorado submarket led to an exceptionally well-executed result, with 30% tours and 30% offers. This is a testament to the resilience of the SFR and BTR sectors, even in the face of broader market challenges.

Navigating the Pandemic Boom and Post-Boom Realities

Interestingly, during the pandemic-fueled housing boom of 2021-2023, the income stream of these purpose-built rental subdivisions could have been sold for 10-60% higher than the retail home prices across the street. Berkadia’s experts explain that in the post-boom era, transactions are still getting done, but it takes a bit more effort and financial engineering.

The key is to focus on improving the overall operations of the asset in preparation for a future sale. This approach may yield the best outcome in the current market environment, where buyers are more discerning and focused on long-term potential rather than short-term gains.

Riding the Wave of Success: Berkadia’s Accolades and Expertise

Berkadia’s unwavering commitment to the SFR and BTR sectors has not gone unnoticed. In 2022, the firm was recognized by its peers and industry experts, taking home the inaugural “Single-Family Rental Industry Investment Sales & Debt Brokerage of the Year” award at IMN’s established 10th Single-Family Rental Investment Conference in Scottsdale, Arizona.

Berkadia’s experts attribute this success to the firm’s national footprint and unrivaled local expertise, which have been instrumental in helping clients navigate the ever-evolving landscape of residential housing investments.

As the demand for the SFR and BTR sectors continues to grow, many investors are shifting their strategies to include these asset classes. And with Berkadia’s proven track record, I can’t think of a better partner to have on your side as you navigate the mortgage maze and stay ahead of the curve in 2023 and beyond.

Remember, my friends, when it comes to residential housing investments, the fundamentals are as strong as ever. So, let’s roll up our sleeves, embrace the changes, and capitalize on the opportunities that lie ahead. After all, affordable housing solutions have never been more crucial, and I’m confident that with the right guidance, you’ll be well on your way to weathering the storm and coming out on top.

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