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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 38 August 2023 F E A T U R E WITH THE RIGHT TOOLS, CONSTRUCTION LOAN OPPORTUNITIES CAN BLOSSOM Continued housing demand and a lack of existing inventory are just two of the forces that make construction-to-permanent loans an ideal opportunity to make up for lost volume in today's marketplace. B y S H A N N O N FA R I E S I n The Book of Tea, Japanese scholar and artist Kakuzō Okakura wrote, "The art of life lies in a constant readjustment to our surroundings." Truth be told, the "art" of originating mortgages isn't much different—especially nowadays, when higher rates are forcing lenders to think outside the box to stay in business. While most banks and independent mortgage bankers are still in cost-cutting mode, construction-to-permanent loans represent an ideal opportunity to make up for lost volume. In fact, the future for this product segment has rarely been brighter. Why the Timing Is Right for Construction Lending T here are several reasons why construc- tion loan opportunities are growing, and why a growing number of lenders are already receiving positive results. Zillow reports that the United States needs 4.3 million more homes, and other sources estimate that number to be even higher. With inventory at an all-time low, homebuyers are increasingly finding that their best option to get into a home is with new construction. In fact, builder confidence has started to rise, according to the National Associa- tion of Home Builders (NAHB), citing "solid demand, a lack of existing inventory, and improving supply chain efficiency" as the reasons that helped shift the June builder confidence index into positive territory for the first time in 11 months. The new home construction industry is beginning to thrive, creating an environment ripe with poten- tial for independent mortgage bankers and mortgage lenders. According to a recent S&P Global Market Intelligence report, this past year saw an 18% an- nual increase in residential construction loans, the largest annual jump since 2016. Meanwhile, U.S. Census Bureau data points to more good news: housing starts surged 21.7% between April and May, the fastest pace in over a year. This confluence of trends presents a potent opportunity for lenders to essentially signal a green light for those considering launching or expanding their construction- to-permanent loan programs. It's not just a vi- able business opportunity, it is also a strategic move that could significantly boost a lender's portfolio—as long as they have the right tools and resources in place. It is important to remember that while existing home mortgage origination volumes have increased slightly, it is still a seller's market. And with rates significantly higher than they were a year ago, fewer would-be sellers are keen to trade their 3% rate loan for a 7% rate. On the other hand, buyers of new construction do not have to settle for the low inventory that currently exists—plus they can avoid getting dragged into a costly bid- ding war for a home in need of renovation. The U.S. is experiencing a housing shortage of epic proportions that has only grown more acute over the past year. Despite the building industry's optimism, research from the National Association of Realtors (NAR) has found that the United States is not building enough homes to keep up with new household formations. We are in a deficit, and it appears to only be getting deeper. In June, the group reported that the nation's low housing inventory is hurting middle-income buyers more than any other group. In other words, a serious construction boom is not only very likely but incredibly necessary. Mortgage lenders who already S H A N N O N F A R I E S is Director of Strategic Relationships for Land Gorilla. Faries manages strategic partnerships and provides consulting services for Land Gorilla's industry partners, including loan closing doc providers, mortgage insurance companies, insurance providers, and government agencies. Faries has lifelong experience in mortgage banking and construction lending. He has founded and managed mortgage banking operations and is the former Chief Lending Officer of a federal savings and loan institution. Throughout his career, starting as a loan officer, Shannon has focused on construction and renovation lending, including A&D loans, and builder financing.