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Once again, I am writing a blog about how lenders can compare and prioritize markets to fit their unique strategic initiatives and advantages. Let’s assume I am a lender who is looking for 2017 FHA opportunity. Where should I focus my resources in order to capture the most FHA dollars this year? We can start by looking at the Top 10 MSAs in terms of FHA purchase dollars, as captured in Table 1.
There’s no doubt that these MSAs are among the largest of any MSA in the U.S. So, if I simply want to focus on 2017, my work of identifying where to find the most FHA opportunity is done. However, there is sure to be stiff competition in these markets not just for FHA, but for all other kinds of mortgage opportunity. Now, let’s say I decide to adjust my lending strategy slightly to also look at the MSAs that have the fastest growing FHA opportunity over the next five years. As a result, I introduce the Mortgage Opportunity Index (MOI) as a variable in this analysis. Table 2 below identifies the Top 10 MSAs in terms of 2017 dollars and MOI.
Once MOI is introduced, only three MSAs are common to both tables: Dallas, Denver, and Washington, DC. Where does that leave me as a lender? Well, if I am determined to chase the largest markets from Table 1, I would use the analysis in Table 2 to pare down the list and focus intently on just the Dallas, Denver, and Washington, DC markets. This strategy allows me to both go after large FHA opportunity AND ensure I am best positioned for future FHA success if I gain a foothold in those markets.
Now, let’s look at Table 2 a bit more closely. Why does the Boulder MSA make the Top 10 in Table 2? It’s tiny (by comparison)! We forecast only $24 million FHA dollars there in 2017. However, Boulder makes the Top 10 list in this scenario because it is growing so quickly over the next five years. Remember that the MOI is an index of how each MSA is growing (in FHA purchase dollar opportunity) over the next five years, relative to the growth rate of all purchase opportunity in the over the same 5 years. What an MOI of 2.17 indicates is that Boulder’s FHA market is growing more than twice as fast as the US purchase market. In fact, Boulder is the seventh fastest growing MSA in FHA opportunity. By contrast, Fort Collins is fourteen, while Dallas (36th), Denver (40th) and Washington, DC (52nd) all lag behind.
In this analysis, my weighting scenario designated FHA MOI to be twice as important FHA purchase dollars. Once again, however, the important takeaway is that you, as a lender, should consider your own, distinct lending strategies and goals when determining where to allocate your resources. The more tailored and relevant the analysis, the better business decision you will make this year and into the future.