REI INK

How AI is Revolutionizing Private Lending

Embrace AI, Do Not Fear It by James Keegan Artificial Intelligence (AI) has crept into most industries in some way, and it is transforming not only the real estate industry overall, but private lending, specifically. As the private lending industry grows exponentially each year, lenders are facing a major rise in competition from new private lenders as well as banks that are actively expanding their lending offerings. From big data analytics to improved security, AI is a game-changer for private lenders who are striving to keep up with a rapidly evolving market and the changing needs of modern borrowers. AI technology is opening up a world where lenders can tap into these needs like never before and streamline the lending process, all while improving security and analyzing data, to create a seamless and unique experience for each borrower. Let’s take a closer look at some of the most impactful AI uses for private lenders as the future of real estate quickly becomes the present. Predictive analytics One of the most transformative ways that AI is being used in real estate in 2024 is to predict future market trends, property values and investment opportunities. Fast data analysis is perhaps one of AI’s most useful qualities, particularly for private lenders who can benefit from the deeper insights and hidden patterns that AI can deduce, which humans may not. AI is also more efficient at analyzing each neighborhood down to a granular level to identify changes that may impact properties and, by extension, real estate loans. A good example of this would be real estate appraisal companies that are now using AI for Automated Valuation Models (AVMs), to provide instant property valuations. Along with that, AI can predict future property values with much greater accuracy, which means that private lenders can assess the risk associated with properties more accurately and adjust their LTV ratios according to the future value of a property. Security and risk management AI is used to enhance security in real estate transactions by machine learning algorithms analyzing vast amounts of data in real-time to find patterns and pinpoint any anomalies. Through this, AI can detect fraudulent activities and, as such, ensure the integrity of transactions. AI systems can also detect fraudulent activities from small shifts in transactional data, which go unnoticed to the human eye, such as changes in digital signatures. This allows private lenders to keep up with fraudsters with ever-evolving tactics. Along with this, AI technology provides real-time risk scoring that adjusts according to the information gathered. So, risky accounts can now be identified quickly, which allows private lenders to intervene and manage these risks early to potentially save themselves from major losses. Streamlined application processing One of the most prominent enhancements that AI provides for the private lending industry is in the loan application process. AI is streamlining the way documents are collected and speeding up the entire loan application process which means that borrowers can get their loans quicker, with less paperwork and less stress. Loan processes are notoriously laborious and full of paperwork, but AI is optimizing this by reducing underwriting time through quicker borrower evaluations, extracting necessary information from documents, and verifying data using natural language processing (NLP) combined with machine vision. For example, AI technology can assess a borrower in just a matter of seconds by matching their income data with bank deposits and tax filings. Customer communication can also be customized to each borrower’s sentiment more accurately using AI, which can result in a stronger borrower-lender relationship. Automated documents and reports AI is being used to improve loan processes by automating the preparation of reports and documents. This not only speeds up the loan process but provides a transparent and efficient experience for borrowers. Loan agreements can be generated through AI using data from the loan application, the specific loan terms required, as well as the local laws and regulations that apply to each area. Smart contracts are one of the most revolutionary aspects of AI technology to be brought to the private lending realm. These are self-executing contracts that are triggered by certain actions and will execute according to pre-determined terms coded at the outset. Smart contracts are making loan transactions more efficient and hassle-free. Personalization In the age of individuality and customization, being able to offer loan products that can be tailored to each borrower’s specific needs is a pivotal moment for private lenders. Structuring loans in a way that suits each borrower in terms of their risk tolerance, financial situation and even their memory, is a great way to appeal to more clients and have more success with loan repayments. However, using AI, lenders can go one step further to create an overall lending journey that is uniquely designed for each borrower’s circumstances, goals and preferences. Beyond tailoring loan products to each borrower, AI allows for proactive customer service. For example, if a borrower is repeatedly missing their monthly repayments, AI technology could be used to pick up on this trend and proactively reach out to the borrower with a reminder each month. Alternatively, if the market conditions change within a borrower’s region, AI can be used to analyze the impact of this on the borrower’s loan and their loan structure can be adjusted accordingly. AI should not be seen as something to fear, but rather as a powerful tool for private lenders to use to stand out from the crowd by enhancing their existing processes, as well as introducing new features that are driven by data, personalization and proactivity. AI technology has created an eco-system where both lenders and borrowers can benefit from the transformative qualities it brings to real estate transactions and the lending journey. To learn more, please visit https://newsilver.com/

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Seasonal Upkeep and Winterization Tips

Helping Investors Maintain Property Values by Radian Real Estate Management As a real estate investor, regular upkeep may be crucial in maintaining assets. With winter approaching, it’s vital to prepare, as minor damage can escalate into serious issues. Consider taking these steps this fall:  »            A pre-winter prep party // While changing leaves are beautiful, tree and shrub debris can damage homes and lawns. Consider trimming shrubs and trees away from the house and removing all branches, twigs, and other leaves from the roof that could potentially clog gutters or downspouts.  »            Prepare for a winter wonderland // Snow and ice can be hazardous if properties aren’t properly prepped. These conditions can damage roofs, interiors, and plumbing through leaks or burst pipes. Before temperatures drop, it may be wise to service the HVAC system, ensure windows and doors are properly sealed to keep out the cold, drain and close off outdoor water pipes, and provide salt and shovels for snow and ice removal. After lines have been closed off, consider performing a pressure test on the system to help identify any leaks to prevent potential issues when systems are turned back on in the spring.  »            Vacant properties need love, too // Often prone to more damage, don’t neglect unoccupied properties, which may require additional winterization. Consider keeping the heat running throughout winter to avoid frozen pipes or other mishaps. As you enjoy fall, take time to prepare your investments before the weather changes. Proactive maintenance may help prevent costly repairs and ensure tenant satisfaction throughout winter. Be sure to hire reliable, licensed professionals to assist with winterization. That way, when the snow begins to fall, you can sit back, sip a cup of hot cocoa and enjoy it. Learn more by clicking HERE

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Housing Market and Single-Family Rental Indices

Key Indicators All Showed Improvement in October by David Howard The National Rental Home Council (NRHC) serves as the trade association for the single-family rental (SFR) home industry. NRHC members include owner-operators, builders, vendors, and service providers of single-family rental homes across the country. Our mission is simple: The NRHC works to educate the public about the benefits of SFR homes and advocate for sensible policies that support the single-family rental market. Our aim is to help preserve and strengthen the availability of SFR properties and to support communities by providing a sought-after form of housing. We also provide members with industry-specific educational opportunities, market research, and other tools to guide them through the ever-evolving housing market landscape. In keeping with the Data & Analytics theme of this issue of REI INK, below are three indices which show signs of improvement in both the Single-Family Rental industry and the overall housing market. NAHM/Wells Fargo Housing Market Index According to the National Association of Homebuilders/Wells Fargo Housing Market Index (HMI), US homebuilder sentiment climbed for a second consecutive month to 43 — reaching a four-month high in October. However, sentiment under 50 still implies that homebuilders’ spirits are dampened. The increase was likely driven by optimism over further declines in mortgage rates and receding inflation, which could boost demand for new homes. The HMI exceeded economists’ expectations of 42, according to Bloomberg. Key indicators, including future sales outlook over the next six months, present sales, and buyer traffic, all showed improvement in October. 32% of builders reported cutting prices, while 62% used sales incentives. The average reported reduction was 6%. The index rose in all regions except the South, based on a three-month moving average. The North (51) was the only region above 50. CoreLogic Single-Family Rental Index SFR rents rose 2.4% annually in August 2024, according to the CoreLogic Single-Family Rental Index (SFRI). Meanwhile, measured month-over-month rents declined 0.2%. August’s annual growth rate was the slowest since late 2023. Broadly, renters expect 4.5% rent growth over the next 12 months, according to the Fannie Mae National Housing Survey. Low-tier rents declined by 0.2% — a rarity, as the last low-price tier decline was around the time of the Great Recession. Conversely, high-end rents climbed faster than average at 2.9%. Among the top 20 metropolitan areas tracked by CoreLogic, Seattle (5.8%), New York City (5.5%), and Washington DC (5.5%) led year-over-year rent growth. Sun Belt markets Austin (-2.3%), Phoenix (0.0%), and Orlando (0.2%) lagged behind the rest of the pack. Despite the slowdown, Phoenix and Orlando are still up 38% and 41%, respectively, from four years ago. Fannie Mae’s Home Price Index Fannie Mae reported home prices increased 5.9% over the past year. According to Fannie Mae’s Home Price Index, single-family home prices increased 5.9% from the third quarter of 2023 to the third quarter of 2024, a decline from the previous quarter’s annual increase of 6.4%. Government Affairs California Governor, Gavin Newsom, recently signed legislation impacting rental property owners in the state. Assembly Bill 2493 prohibits property owners from charging prospective tenants a screening fee to applicants not selected for a vacancy; and Assembly Bill 2801 requires property owners to provide photographic evidence of necessary repairs and proof they were completed before accessing security deposit funds. Industry Leaders Conference And in closing, I would like to invite you to join us at NRHC’s Industry Leaders Conference, the single-family rental home industry’s most important annual event. The event will be April 6-9, 2025, in Orlando, FL. Take advantage of the many opportunities to participate and hear from owner-operator executives and other experts in the SFR and BTR communities. Make valuable connections and network with your industry peers during a variety of engaging general sessions and be a part of the discussions on build-to-rent, housing policy initiatives, operational innovations, and advancements in technology.

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Home Seller Profit Margins Drop Slightly in Q3

Typical Margin at 56% as Median Home Price Levels Out by ATTOM Team ATTOM, a leading curator of land, property data, and real estate analytics, released its third-quarter 2024 U.S. Home Sales Report, which shows that homeowners earned a 55.6% profit margin on typical single-family home and condo sales in the United States during the third quarter. That figure was down by small amounts both quarterly and annually, dipping by one percentage point from the second quarter of 2024 and two points from the third quarter of last year. The nationwide investment return ticked downward as home-price spikes that had buoyed the housing market during the Spring of this year flattened out, leaving the U.S. median home value virtually unchanged at about $360,000. While home-seller profits remain historically high, the national margin has declined almost every quarter from a 64% peak hit in 2022. The leveling off of prices during the third quarter also led to typical raw profits for sellers staying about the same, near an all-time high of just under $130,000. “The latest price and profit numbers provided another round of generally good news for homeowners, tempered by a bit of a downside,” said Rob Barber, CEO for ATTOM. “Home values remained at or near record levels around large swaths of the country, keeping seller profits far above historical levels. At the same time, though, the housing market settled down after a big second quarter, which extended a slow fallback in profit margins that started last year. If history is a good guide, the fourth quarter is likely to bring more of the same as the peak buying season ends.” He added that “this is far from a warning sign that the long market boom is ending. But there certainly are forces that could cut either way, especially as affordability remains a challenge for so many potential buyers.” Profit margins slip quarterly in half of U.S. Typical profit margins — the percent difference between median purchase and resale prices — stayed the same or decreased from the second quarter of 2024 to the third quarter of 2024 in 79 (50.6%) of the 156 metropolitan statistical areas around the U.S. with sufficient data to analyze. They were down annually in 112, or 71.8%, of those metros, and down in about the same portion since the second quarter of 2022, when the nationwide return on median-priced home sales peaked at 64.3%. Profit margins have softened over the past year throughout all price segments of the market, from metro areas where home values mostly sit below $250,000 to those where they top $450,000. But the low end of the market has fared a bit better. Typical margins decreased annually in about 60% of the least expensive metro areas compared to about 75% elsewhere. The biggest year-over-year decreases in typical profit margins during the third quarter of 2024 came in the metro areas of:  »            San Francisco, CA (margin down from 84.9% in the third quarter of 2023 to 61.4% in the third quarter of 2024)  »            Punta Gorda, FL (down from 94.1% to 74.4%)  »            Scranton, PA (down from 88.2% to 69.6%)  »            South Bend, IN (down from 77.3% to 59.2%)  »            Hilo, HI (down from 86.5% to 70.5%) Aside from San Francisco, the biggest annual profit-margin decreases in metro areas with a population of at least 1 million in the third quarter of 2024 were in:  »            Austin, TX (typical return down from 44.3% to 33.3%)  »            Honolulu, HI (down from 53.9% to 43.3%)  »            Riverside, CA (down from 78.6% to 69%)  »            Birmingham, AL (down from 52.1% to 42.7%) The biggest annual improvements in returns on investment came in:  »            Trenton, NJ (margin up from 65.5% in the third quarter of 2023 to 87.4% in the third quarter of 2024)  »            Albany, NY (up from 31.8% to 51.6%)  »            Rockford, IL (up from 54.5% to 70.2%)  »            Rochester, NY (up from 66.7% to 81.2%)  »            Evansville, IN (up from 47.2% to 61.7%) Two-thirds of metro markets show returns above 50% Despite the downward trend, returns on investment for median-priced home sales during the third quarter of 2024 still surpassed 50% in 107 of the metro areas analyzed (68.6%). That was down from three quarters of those areas in the third quarter of last year but far above the level of 13% five years ago. The leaders among areas with a population of at least 1 million in the third quarter of this year were:  »            San Jose, CA (typical return of 109.8%)  »            Seattle, WA (90.3%)  »            Providence, RI (84.6%)  »            Miami, FL (83.9%)  »            Grand Rapids, MI (81.9%) The lowest among areas with a population of at least 1 million were in:  »            New Orleans, LA (24.8%)  »            San Antonio, TX (25.1%)  »            Austin, TX (33.3%)  »            Houston, TX (37.3%)  »            Dallas, TX (37.4%) Raw profits remain near record level The raw profit on median-priced home sales nationwide, measured in dollars, slipped 0.9% during the months running from July through September of this year, to $128,700. But it was still up 2.7% from the third quarter of 2023 and remained near the record of $135,000 hit in 2022. Typical raw profits were flat or down quarterly in 74, or 47.4%, of the markets analyzed. Despite the nationwide year-over-year gain, raw profits were the same or down annually in 82, or 52.6% of those metro areas. The biggest year-over-year increases in raw profits on typical sales among metro areas with a population of at least 1 million were in:  »            Rochester, NY (up 24.4%)  »            Cleveland, OH (up 23.5%)  »            Providence, RI (up 18.9%)  »            Chicago, IL (up 18.8%)  »            Cincinnati, OH (up 15%) National median home value stalls in Summer of 2024 Nationwide, the median price of single-family homes and condos rose from the second to the third quarter of 2024 by just 0.2% after spiking 7.4% in the Spring. But it still hit a new record of $360,500, up from $359,900 in the prior three-month period.

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Taking Advantage of a Changing Market

Uncontested Investing is always ready to answer your questions and provide insights on different topics that will help investors move the needle in their businesses in real estate. In this episode, we’re answering questions that you have sent in through the weeks to help you prepare for 2025 and what’s bound to come our way. Listen now to learn more about the things you need to keep in mind as a real estate investor entering 2025, what new investors should understand as they enter the industry this coming year, and how you can make the most of your investments despite market cycles! Quotables “For investors that have already seen and done a lot of different property types, this is a type of environment from an economy standpoint where you want to start diversifying your portfolio.” “AI is something that all investors should be taking advantage of. Technology can be one of your best friends in this industry.” “The local REIAs are much more convenient for an investor, but trade shows are really where you can take your business to the next level.” Links Website: RCN Capital https://www.rcncapital.com/podcast Website: REI INK https://rei-ink.com/

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S&P CORELOGIC CASE-SHILLER INDEX RECORDS 4.2% ANNUAL GAIN IN AUGUST 2024

S&P Dow Jones Indices (S&P DJI) released the August 2024 results for the S&P CoreLogic Case-Shiller Indices. The leading measure of U.S. home prices recorded a 4.2% annual gain in August 2024, a slight decrease from previous levels in 2024. More than 27 years of history are available for the data series and can be accessed in full by going to https://www.spglobal.com/spdji/en/index-family/indicators/sp-corelogic-case-shiller/. YEAR-OVER-YEAR The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 4.2% annual return for August, down from a 4.8% annual gain in the previous month. The 10-City Composite saw an annual increase of 6.0%, down from a 6.8% annual increase in the previous month. The 20-City Composite posted a year-over-year increase of 5.2%, dropping from a 5.9% increase in the previous month. New York again reported the highest annual gain among the 20 cities with an 8.1% increase in August, followed by Las Vegas and Chicago with annual increases of 7.3% and 7.2%, respectively. Denver posted the smallest year-over-year growth of 0.7% MONTH-OVER-MONTH The pre-seasonally adjusted U.S. National Index, 20-City Composite, and 10-City Composite upward trends reversed in August, with a -0.1% drop for the national index, and the 20-City and 10-City Composites saw -0.3% and -0.4% returns for this month, respectively. After seasonal adjustment, the U.S. National Index posted a month-over-month increase of 0.3%, while the 20-City and 10-City Composite reported a monthly rise of 0.4% and 0.3%, respectively. ANALYSIS “Home price growth is beginning to show signs of strain, recording the slowest annual gain since mortgage rates peaked in 2023,” says Brian D. Luke, CFA, Head of Commodities, Real & Digital Assets. “As students went back to school, home price shoppers appeared less willing to push the index higher than in the summer months. Prices continue to decelerate for the past six months, pushing appreciation rates below their long-run average of 4.8%. After smoothing for seasonality in the data, home prices continued to reach all-time highs, for the 15th month in a row. “Regionally, all markets continue to remain positive, barely,” Luke continued. “Denver posted the slowest annual gain of all markets this year, dropping below Portland for the first time since the spring. The Northeast remains the best performing region, with the strongest gains for over a year. Currently, only New York, Las Vegas, and Chicago markets are at an all-time high. Comparing average gains of traditional red and blue states highlight a slight advantage for home price markets of blue states. With stronger gains in the Northeast and West than the South, blue states have outperformed red states dating back to July 2023.” For more information about S&P Dow Jones Indices, please visit www.spglobal.com/spdji.

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