At Juniper Capital, we strive to educate our clients so they can make the most informed decisions regarding their real estate investments. As private money lenders in the Northwest, we specialize in commercial real estate financing, construction loans, fix and flip loans, and more. Leverage Juniper’s hard money lending experience and expertise in the year to come – give us a call to start the conversation today.
Taking a look at the year behind us to better understand where we are going in 2019.
As we come to the end of the year and look back on 2018, there are several notable trends and lessons we can learn from to gain insight on the lending and real estate markets in the year to come.
2018 saw continued growth and opportunity in the real estate markets in Seattle, the Pacific Northwest, and nationwide, but there are potential storm clouds are forming on the horizon.
After years of record low interest rates, the Fed began raising rates in 2018 with a series of rate hikes that brought the Fed Funds rate to 2.25%. With additional rate hikes anticipated in 2019, the continually increasing rates will lead lenders to raise pricing as a result. Because of rising rates, it’s likely there will be a decrease in asset pricing and a decompression of cap rates.
Pricing Influenced by Competition
Institutional investors flooded the lending markets with capital in 2018 in search of yield. In many cases, loan pricing replaced risk analysis as a factor of competition for the deal due to increased competition amongst lenders. While in some cases this past year that competition presented opportunity for real estate investors, it may also indicate a bubble on the horizon for the year ahead.
Cost Overruns – a Major Concern
Construction costs, particularly in Seattle and the Pacific Northwest, continued to present a challenge for builders and developers in 2018. A particularly concerning trend surrounding construction costs was when contractors underbid projects and then presented property owners with significant cost overruns. From a lender’s perspective, this sparked an increase in out-of-balance construction loans.
While some construction costs have begun to plateau and labor is becoming easier to find, the importance of receiving several quality bids on a project cannot be overstated.
A Recession on the Horizon
The slowdown in the real estate market and volatility in the equities markets during Q3 and Q4 have led some to believe a recession may be on the horizon. In the residential real estate market, average days on the market has expanded significantly, representing a major threat to the fix-and-flip industry.
While a shift is certainly underway, it could potentially represent a return to a more normal real estate market, as opposed to the hyper-appreciation that’s been common in the last several years.
There may be some cause for caution as we look forward to 2019, but we’re optimistic that there will be significant opportunity for savvy real estate investors in Seattle, Tacoma and the South Sound, the state of Washington, and the entire Pacific Northwest. Call us today to learn more.