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This blog represents part two of our three-part series on diverse markets. While part one focused on our forecast for 2017 Hispanic purchase dollars, part two focuses on our forecasts for 2017 Black/African American* purchase dollars.
Let’s start by ranking MSAs in terms of purchase dollar opportunity for the Black/African-American borrower segment. Again, you can see in Table 1 below that some of the largest MSAs occupy the top 10 spots in the table.
So, what happens to the list when we incorporate a second variable? Once again, I will incorporate the speed of dollar growth over the next five years (a.k.a., the MOI, or the Mortgage Opportunity Index) into the analysis. Once we include the MOI, the top 10 looks different, as seen in Table 2.
Table 2. 2017 Top 10 MSAs by Black/African American Purchase Dollars and MOI
The only Top 10 MSAs common to both tables are Los Angeles, Riverside, New York, and Washington, DC. How did this happen? Again, the results occurred due to how I weighted the variables in terms of importance. In this case, I weighted the MOI to be twice as important as dollar volume. The result is that Los Angeles, which sits atop Table 2, ranks seventh in terms of overall Black/African American borrower purchase dollars and 37th overall in terms of MOI. By comparison, Modesto, which is not in the Top 10 in Table 1, ranks fifth in Table 2. Here’s why: Even though it is ranked only 122nd in purchase dollars to Black/African-American borrowers, it is 32nd overall in terms of MOI. Modesto is in the middle of the pack in terms of size, but it is growing quickly—possibly making it an excellent choice as a priority MSA for a lender who is focusing on improving its overall lending to Black/African-American borrowers.
Now, let’s add a twist to this analysis by introducing a third variable—Purchase Mortgage Density (PMD). The PMD is defined as the density of mortgage dollars, per 1,000 homeowners, generated in a market each year. The higher the PMD, the denser the market, which translates into lower marketing and coverage costs for a lender. Table 3 captures this new metric.
Table 3. 2017 Top 10 MSAs by Black/African American Purchase Dollars, MOI, and PMD
So, what does all this mean? Why did Los Angeles fall one spot? Well, as I mentioned above, L.A. is seventh in 2017 purchase dollars, 37th in MOI, but only 93rd when it comes to PMD. 93rd means that L.A. is spread out with regard to Black/African American lending. Riverside, by contrast, is 10th in 2017 purchase dollars, 66th in MOI, but 21st in PMD.
Again, the point of this discussion is that this Top 10 list came out the way it did because of what data is important to a particular lending strategy (weighting 2017 purchase dollars the same as PMD and doubling the weight for MOI). Another lender could increase the weighting of 2017 purchase dollars or MOI or PMD or a combination thereof or choose to put more emphasis on a fourth (or fifth, or sixth, etc.) variable. As a result, that lender’s Top 10 Black/African American MSAs would look different, and the list would contain MSAs better matched with its own lending strategy. Once again, understanding what data to consider and how to compare is essential to market-driven strategies that succeed.
Stay tuned for the final installment of this three-part blog series, in which I review and compare mortgage opportunity for Asian borrowers.
*Please note that HMDA refers to this diverse segment as “Black/African American.” In the spirit of HMDA, I am doing the same in this blog.
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