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32 | M R EP O RT FEATURE I t's challenging to stay positive about the housing market these days, especially when confronted with headline after headline about soaring mort- gage rates and plummeting home sales. On the other hand, if you're a veteran of market cycles, you know there are always opportuni- ties to keep business flowing de- spite the higher rates in mortgages and a nadir in home sales. One lending opportunity with the strongest long-term potential is construction lending—even despite the current low activity in newly built homes. The problem? Not everyone who wants to build a home or invest in residential real estate can get the financing they need. Still, as originators begin to think outside the box re- garding new lending options, this picture is starting to change. Housing Stress Grows N o bones about it—the market for new homes is strug- gling mightily under the weight of higher interest rates. In fact, except for a brief moment during the pandemic, the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index recently dropped to its lowest level in 10 years. Meanwhile, new housing starts fell 8.1% in September to the lowest level in two years, accord- ing to the Census Bureau's num- bers. The market is even causing some builders to sell newly con- structed homes to private equity firms—at a discount. When one takes a closer look at the homebuilding market, all is not quite as gloomy as headlines make it seem. For one thing, the costs of construction and labor availability are holding steady. Plus, people who desire a new home usually plan it out for some time and aren't easily swayed from those plans when rates rise. In fact, my company continues to find people interested in financing for new home construction. However, the bigger picture is that the U.S. is experiencing a hous- ing shortage of epic proportions, and ultimately, the only way to solve this problem is to build new homes. According to the National Association of Realtors' most recent numbers, the United States has a shortage of 5.5 million homes across most major metros, particularly Chicago, Los Angeles, New York, and San Francisco. New housing has simply failed to keep pace with new household formations, and the impact is being felt in markets of all sizes. For example, near our head- quarters, Intel is currently build- ing a $20 billion manufacturing site near Columbus, Ohio, that will bring 20,000 new jobs to the region at an average salary of $135,000 per year. This doesn't include additional jobs from Intel vendors who are also relocating to the area. A report funded by the Building Industry Association of Central Ohio recently found that the Columbus region needs to double its home construction over the next decade to meet the area's housing demands. No Qualified Borrower Left Behind W hen fewer people are buying homes, the smart thing to do is to look for niches. And if you haven't given much thought to construction loans, now is the perfect time to offer borrowers as many options as possible, including agency con- struction loans, jumbo construc- tion loans, construction loans with float down-rate options, and more. Even if housing inventory issues were resolved tomorrow, too many borrowers are having trouble financing a new home because they don't qualify using traditional guidelines. As a result, those who otherwise have both the ability and the willingness to repay a construction loan are left stand- ing on the sidelines because of rigid, agency-oriented qualification standards, inflexible processes, and complex loan programs. A large segment of this group consists of self-employed Americans and Seizing Untapped Opportunity in Construction Lending Not everyone who wants to build a home or invest in residential real estate can get the financing they need. Therein lies opportunity. By Michael Isaacs