By Kate Snyder
With more than $21 billion in funded loans, Kiavi is one of the nation’s largest private lenders to residential real estate investors, according to the firm’s website. The company operates in more than half of the states throughout the country, including the entirety of the West Coast in California, Oregon and Washington.
Arvind Mohan, who serves as the CEO of Kiavi, recently answered questions from The Registry about the current state of the U.S. housing market as well as the market’s future outlook, challenges and trends.
Overall, what’s the state of the U.S. housing market?
The U.S. housing market is complex and interesting. The current elevated mortgage rates have perpetuated the historically low housing inventory we’ve been seeing for the past 24 months. This low inventory is keeping home prices high – and when paired with today’s elevated interest rates – is further exacerbating the housing affordability crisis. This dynamic has been challenging for homebuyers and real estate investors, especially first-time homebuyers, who are facing high prices and extreme competition. However, with the Fed indicating potential rate-cuts on the horizon, purchasing a property could become a little more affordable. This could also give momentum to increased inventory from existing homeowners with low interest rates.
What trends are you seeing?
Given the housing affordability challenge and location preferences of first-time homebuyers, we’re seeing real estate investors/developers who focus on new construction projects building smaller yet spatially efficient floorplans. Many times, developers/investors are buying a single family lot and building multiple properties on that lot, increasing density and reducing the square footage of the legacy houses, to accommodate more affordable housing units. Similarly, we’re seeing more and more real estate investors/developers creating ADUs (accessory dwelling units built on a property that already has a primary unit) to create additional, more-affordable housing units and increase density to help solve the housing shortage.
What are the difficulties faced in today’s lending environment and how does Kiavi respond to those challenges?
The interest rate environment has created challenges for lenders and borrowers alike. For lenders, the cost of capital increased rapidly – and liquidity dropped – which caused some lenders, including banks and private lenders, to pull back from financing real estate investments. Despite this, Kiavi’s access to capital from our partners has remained reliable due to our consistency, track record, and performance – so even in this tough environment, we’ve been consistent in flowing capital to our customers. This year in particular, we’ve seen an increase in real estate investors coming to Kiavi after their legacy bank or lender stopped financing their deals, and we’re happy to offer them transparent, reliable capital to acquire more properties and scale their businesses.
Kiavi funded nearly $3 billion in loan volume in the first half of 2024, a 43 percent increase over the same period in 2023. July was also a record breaking month for the company with more than $625 million in originations. What do those numbers tell you about the market and what investors are looking to achieve?
Kiavi’s record start to the year shows that the demand for transparent, reliable, fast, and competitively priced capital among real estate investors continues to be strong. Investors are creative and savvy, so even with today’s limited inventory they’re continuing to identify opportunities to revitalize the large amount of aged housing stock by fixing-and-flipping, building, or purchasing as rental units – and need reliable, competitive capital to do so. Despite some of the headwinds they’re facing around increases in acquisition costs, financing, insurance, and limited inventory, investors are generally optimistic about scaling their businesses, and Kiavi’s growth is a testament to that. In fact, a recent John Burns Research and Consulting Survey on the Fix-and-Flip Market found that 88 percent of flippers expect Good or Average sales relative to seasonal norms in the next six months – more than 3X those who expect Poor sales. That said, interest rates, affordability, and housing supply will be key to watch over the next few months and into 2025. As rates continue to come down and more inventory comes on the market, we expect investors to continue to scale their businesses with efficient, reliable financing.
How does Kiavi incorporate technology into its practices and why is it important to do so?
Every property and every renovation is unique, so Kiavi’s technology and data platform is a massive differentiator to help our customers navigate these nuances in a simple, transparent, and reliable manner regardless of their experience level. Our digital-first approach enables customers to efficiently and transparently price out deals and have the confidence to make their next purchase, whether they’re a seasoned pro or a first-time real estate investor. In addition, our platform also enables borrowers to close much faster than traditional financing options by automating processes and eliminating extraneous elements of the lending process. With data from 80,000+ transactions over the past decade powering our AI and machine-learning models, Kiavi can provide more borrowers with access to scalable, competitively priced capital.
We are excited about where we are on our journey to help real estate investors succeed. With the advent of new technologies (such as LLMs), we’ve seen an even greater opportunity to streamline the delivery of capital to real estate investors and give them the confidence to do what they do best: acquiring and revitalizing aged housing across the country.
In the housing market, where do you see current strengths and weaknesses?
We’re continuing to see strong demand for housing, fueled by demographic trends such as Millennials reaching peak home-buying ages and an overall shortage of housing inventory to meet current demand. Because of the lack of supply to meet demand, home prices have remained relatively high, even as inflation tempers. And while home price growth is slowing, many regions are still seeing significant home price increases compared to pre-pandemic levels as a result of the persistent demand and lack of supply.
The relatively elevated mortgage rate environment has been a significant barrier for homebuyers, reducing affordability and making it harder for first-time buyers to enter the market. This has led to a decrease in the number of home sales nationwide and kept some potential buyers on the sidelines unwilling to trade their owned home or low mortgage rate for a higher rate.
What kind of challenges do you anticipate for the housing market and real estate lending in the future?
Even as interest rates decrease, we unfortunately don’t see the supply of affordable, move-in ready housing meeting demand any time soon. That said, there is an enormous opportunity for real estate investors to modernize the current U.S. housing stock to help provide more affordable, move-in ready housing across the nation. Over 65 percent of the U.S. housing stock is more than 30 years old – with a median age of 39 years old – and is worth an estimated $25 trillion. As these aged homes become available thanks to lower mortgage rates creating more of an incentive for homeowners to sell as well as the 71.6 million people in the Baby Boomer generation reaching retirement age, real estate investors can transform this enormous segment of the housing stock to provide modern, move-in ready housing for millions of Americans. Given this supportive housing backdrop, lower mortgage rates, and increased demand from entry-level homebuyers, we expect the real estate investment market to continue to see growth in the foreseeable future.
While we don’t have a crystal ball, we expect the next year to trend more positively for housing activity despite ongoing uncertainty around economic growth and the potential for a recession. That said, ongoing geopolitical tensions could impact supply chains, affecting the cost and availability of materials for new construction and renovations, which in turn affects our borrowers and how much capital they need for a particular project. Similarly, if natural disaster frequency and severity continue to increase as a result of climate change, we could continue to see hazard insurance even more significantly impacting real estate inventors’ and their carrying costs on projects in areas particularly affected by these disasters.
