The expectation of rate cuts by Jerome Powell and the actual reduction in the Fed rate by 50 bps instead of the much anticipated 25 bps have had their mark on private lending. Private credit and the 1-4 family residential property asset class have proven their resilience.
In this newsletter, we will look at the data trends relevant for private lenders by parsing through the data in Lightning Docs which is producing almost 4,000 private lender loan transactions monthly, for more than$2,000,000,000 of monthly loan origination across more than 200 private lenders, including more than 60% of the top 50 national private lenders.
For private lenders who make residential transition loans (bridge with no construction, construction, fix and flip, etc.), volumes have been up 30% year over year, looking at Q1-Q3 of 2023 compared to that same time period in 2024. When discussing this increase with our clients, these growth targets were far in excess of any 2024 planning and are particularly impressive, considering that the Fed monetary policy did not change until recently.
RTL rates are declining ever so slightly each month, with a high water mark of 11.60% in January down to a national average of 10.99% in October of this year.
RTL interest rates are also following an interesting trend line. Top-tier credit real estate investors are able to attract interest rates between 9-9.99% nationally, with a full 15% of loans in that range in October of this year. However, the majority of loans are still somewhere between 10-10.99%, with 39% of 1980 loans being in that range.
For RTL lenders seeking the greatest yield opportunities, ironically enough, California proves to be the national darling. When looking at counties that outperformed the national average of 11.19% for all of Q3 2024, California had six unique MSAs, all above the national average in interest rate and loan amounts, providing for a very healthy market. Florida was the only other state with multiple counties providing better than average interest rates, although loan sizes were dramatically smaller in those counties.
Private lending remains a regional business, and lenders must understand their market dynamics. When looking at the top 10 MSAs nationally, there are dramatic differences between loan sizes, the number of competitors, and average interest rates.
If you think RTL is doing well, wait to see what’s happening with DSCR loans. Interest rate volatility that started around June of this year has seen rates decline by almost a full percentage point in the past few months. Meanwhile, volumes for our Lightning Docs users experienced an expected similar increase as interest rates were falling.
Markets also matter for DSCR loans, although there is a little less volatility at the MSA level for interest rates across the most popular MSAs.
In summary, a message you will hear me repeat many times as we advance, assuming interest rates continue to head down, RTL lenders absolutely must be exploring brokerage, tablefund, or correspondent relationships with DSCR capital providers as they are missing a BIG opportunity otherwise.
Lightning Docs empowers private lenders with a seamless, automated solution for creating compliant, high-quality loan documents, Lightning Docs delivers speed, accuracy, and ease of use to elevate efficiency across the lending process. By providing comprehensive, law firm-grade documentation tailored to each unique transaction, we enable our clients to scale their operations confidently and focus on what they do best: financing success.
I hope you all have a wonderful holiday season ahead of you.
– Nema Daghbandan