It’s no secret that the country is experiencing a major housing shortage. Construction loans in Arizona will play a pivotal role in relieving it.

CNBC recently reported on the national housing shortage. Supply is way down, thanks to increasing demand and favorable mortgage rates. At present, there are 1.77 million homes on the market, but experts say it would only take 3.9 months for the stock to be depleted entirely. It may sound like a lot, but a balanced market usually equates to about a six-month supply and stock has been dropping steadily over the past five months. Vacancy rates for single-family homes sit at 6.8%, down 7.1% from a year ago.

Challenges are greatest for those trying to purchase homes for the first time, with entry-level properties in the $100,000 to $250,000 range seeing a 6% drop in availability compared to one year ago. Part of this is driven by Millennials who have endured difficult economic times and are just now feeling strong and confident enough to take the plunge.

Inventory reductions are even more significant in certain parts of the country. Phoenix, for example, has 15% less housing available than it did a year ago. Austin and Las Vegas have seen 14% drops as well. Despite the respective high cost of housing overall, the state of California has also taken a major hit, which experts attribute to the increase in tech jobs available.

Investors are Being Successful with Both Sell and Hold Strategies

The seller’s market makes it harder for fix-and-flip strategies to work, simply because it’s that much harder to find an ideal property at a good rate that will provide adequate returns. This has more people turning to construction loans for more control over the process and profits. In many cases, investors are grabbing up undeveloped property within high-demand neighborhoods and subdividing plots to get more mileage, but homeowners are increasingly willing to buy in outlying areas just to have a place they can call their own at an affordable price. Ultimately, savvy investors are using their construction loans to build and sell fast, with some concern that the favorable conditions are due for a shift, much like they did last year when a spike in interest rates helped correct the market to some degree. Others are leveraging a hold strategy, converting their financing to a long-term option after the build. Given the steady increases in rent prices, which now sit at a 4% hike year-on-year, the strategy is paying off and may continue even if interest rates put a dent in purchasing.

Alternative lending is giving investors a helping hand.

Despite the fact that market conditions call for more housing and builders can’t keep up, Arizona construction loans through traditional lending sources like banks are in short supply. Although they’re actively courting homebuyers and tempting with great terms, they’re not extending the same options to builders or investors. Alternative lending, hard money in particular, is helping fill the gap. Those interested in taking advantage of the inventory shortage would do well to connect with a hard money broker to explore all the options available.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC

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NMLS 1057378 | AZMB 0923961
22601 N 19th Ave Suite 112
Phoenix AZ 85027

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