My Top 5 - 2024 Predictions in Mortgage Note / Lending Space

[Chris Seveney]

Every year I like to provide some predictions on what I think will occur in the upcoming year as it relates to seller financing, mortgage note investing and the like. So here are my predictions, feel free to offer up your own:

1. We will see an increase in inventory in 2024. This is probably going to be an easy one to predict since inventory was very low in 2023. It did pick up though as the year went on. In Q1 we say about $300M worth of loans cross our desk, Q2 was about $300M/mo and Q3 and Q4 we had weeks where we saw $300M.  Toward the end of the year, we started seeing a big uptick in down payment assistance loan failures (2nd position loans under $10k to help with down payments that were in default. We saw over 5,000 of these loans alone...)

2. The bid/ask spread will close the gap, but you will not see 2018 prices again. Right now, still a decent gap between the asking price and bid price, but as property values decline and taxes and insurance increase, sellers will be more willing to sell. I would expect the reperforming loan market to stay around a 9-12% return to investors and NPL's ticking from high teens back into the 20%+ range.

3. Real estate prices will decline in most markets even if interest rates drop. Why do I say this? While there will probably be a quick bump if there is a drop in interest rates - small businesses are tightening their belts, bank liquidity is tightening as well. Throw in income has not been able to keep up with inflation and home prices and its going to give. Will it crash, I do not think so, but I do not see gains, especially in lower priced markets.

4. You will start to see significant cracks in the seller financed space.  - This one honestly, I feel is a slam dunk. Why do I say that? see #3 above. Also a significant number of people either sold on subject 2 with their low rates or did seller financing with poor underwriting on the borrower. If prices continue to fade and unemployment increases (which is going to happen), then these borrowers who have no equity will say screw it and walk away. Especially as rent rates come back down or stabilize. Saw this happen in 2010-2012. 

5. I will buy at least $30M in notes next year :) - hey had to throw one of my personal goals in there. Make sure to share yours. 

[Don Konipol]

Quote from @Chris Seveney:

Every year I like to provide some predictions on what I think will occur in the upcoming year as it relates to seller financing, mortgage note investing and the like. So here are my predictions, feel free to offer up your own:

1. We will see an increase in inventory in 2024. This is probably going to be an easy one to predict since inventory was very low in 2023. It did pick up though as the year went on. In Q1 we say about $300M worth of loans cross our desk, Q2 was about $300M/mo and Q3 and Q4 we had weeks where we saw $300M.  Toward the end of the year, we started seeing a big uptick in down payment assistance loan failures (2nd position loans under $10k to help with down payments that were in default. We saw over 5,000 of these loans alone...)

2. The bid/ask spread will close the gap, but you will not see 2018 prices again. Right now, still a decent gap between the asking price and bid price, but as property values decline and taxes and insurance increase, sellers will be more willing to sell. I would expect the reperforming loan market to stay around a 9-12% return to investors and NPL's ticking from high teens back into the 20%+ range.

3. Real estate prices will decline in most markets even if interest rates drop. Why do I say this? While there will probably be a quick bump if there is a drop in interest rates - small businesses are tightening their belts, bank liquidity is tightening as well. Throw in income has not been able to keep up with inflation and home prices and its going to give. Will it crash, I do not think so, but I do not see gains, especially in lower priced markets.

4. You will start to see significant cracks in the seller financed space.  - This one honestly, I feel is a slam dunk. Why do I say that? see #3 above. Also a significant number of people either sold on subject 2 with their low rates or did seller financing with poor underwriting on the borrower. If prices continue to fade and unemployment increases (which is going to happen), then these borrowers who have no equity will say screw it and walk away. Especially as rent rates come back down or stabilize. Saw this happen in 2010-2012. 

5. I will buy at least $30M in notes next year :) - hey had to throw one of my personal goals in there. Make sure to share yours. 

Thanks Chris.  Your reasoning sounds right on.
Here’s the reason I no longer make any predictions about real estate.
I was 100% wrong predicting what would occur from Covid 2020.  
I was 100% wrong in predicting what would happen with Bitcoin
I was 100% wrong in predicting the 2016 Presidential election

Amazingly I still increased my net worth a factor of 15 times since 2001. That’s why I believe so strongly in investing in real estate.  Where else can you be so wrong and still be so successful?