Why Looking Backwards Doesn't Help You Tomorrow

Posted By Laird Nossuli on Mar 20, 2014

I’ve been spending a lot of time reading about the mortgage and housing industries.  After reading the headline news, articles, and blogs of many, the general consensus is that the uncertainty of the market’s recovery is not good for anybody.  Over the past month, the industry pubs have been filled with stories about the many challenges we face and share ideas and strategies on how to survive in the volatile lending environment. 

Some headlines:  “So Much is Upside Down in the Mortgage Industry Today,” “US Housing Sector in Big Trouble,”  ”How to Prevent the Next Boom & Bust,”  “Big Banks, Service Providers Dominate Mortgage Layoffs,” and “Mortgage Bankers Cuts Refinance Forecast in Half.”  With the exception of a few, most of the headlines still suggest a tough year (and a tough road) ahead.

Many consumers think that the industry is getting exactly what it deserves. Do I agree?  Not exactly.  Rather than getting what it deserves, my thought is that some lenders in the industry are getting exactly what they prepared for.  Yesterday’s refi boom is over and suddenly, they now have to think about tomorrow’s prospects.

Suddenly, the industry is preparing for a predominately purchase environment.

Suddenly, the industry appears to be hyper-focused on data.  A pull quote from a recent article in Mortgage Banking magazine:  “Without data, the mortgage industry, like every other industry, simply couldn’t function.”

By suddenly, I mean in the past 3-6 months.  And the reason for the “we-told-you-so” attitude I have?  We’ve been saying—over the past 10 years—that the way to survive the vicious ups and downs of market volatility is to 1) use market intelligence to 2) develop strategies focused on sustainable purchase performance (notice the emphasis on sustainable). 

More often than not, these ideas fell on deaf ears. Instead, we heard that 1) intuition told them all they needed to know about all of their markets and 2) they didn’t have time to worry about sustainable purchase performance because they had to capitalize on today’s refis or whichever boom was currently underway.  I wonder if those same lenders still feel the same way.

Here are two of the dictionary definitions of sustainable (courtesy of Merriam-Webster):  to be able to last or continue for a long time; and involving methods that do not completely use up or destroy resources. Resources like loan officers, company culture, profits, referral relationships, and homebuyer trust.

Sustainability is not about yesterday.  It’s not even really about today.  It’s about being prepared for tomorrow.  And to be prepared for the future, we have to understand where it’s headed, which means we have to be getting information—data—from somewhere. 

Here’s where I venture back to the purpose of this blog mini-series about Making Big Data Matter to the Mortgage Industry, and my premise that all data is not created equal. I do see the value of looking at current mortgage application and origination rates that are published weekly, monthly or quarterly.  I do think it’s interesting for lenders to evaluate last year’s or last month’s market share or look at how much a metro area’s home prices have changed. That data is great for understanding how you (or the market) have performed and are performing, but I again I ask:  how does that prepare you for tomorrow? 

Forward-looking market data (aka forecasts) are fundamental to sustainable business strategies that:

  • Define where your business opportunity is going over time
  • Clarify where you want to be and how you will get there
  • Declare how you will deliver value to the marketplace and how you will compete
  • Provide a framework for making decisions and setting directions that put you on a path where you want to be

When it comes right down to it, forward-looking intelligence could mean being ready for the future, or being wrong for it.

Let’s say (for this example) that you’re a division manager for a large regional lender who is a big player in the Northeast and Midwest markets.  Your organization has determined that it needs to expand its western footprint over the next 2-3 years and you’ve been tasked with deciding which markets best fit the goals of this growth strategy. After choosing the markets, you’ll need to develop location, hiring, and sales strategies for each in order to be successful.

Start With Tomorrow's Market Opportunity.  You need to quantify how many purchase loans and dollars are expected for 2014 in each of the metro areas you’re considering.  It’s not good enough to know how many loans and dollars were originated in 2012 and 2013—or even how many loans were originated there in the current quarter.  You need to know what you can expect in the future.

Opportunity in Select Western MSA

You also want to consider how fast each potential market is growing. Why? Your company is specifically targeting markets that are growing quickly over the next 5 years—not just those with the most opportunity today.  As both the table and the map reveal, Las Vegas is one of those fast-moving markets.  Over the next 5 years, owner-occupied purchase mortgages in Las Vegas will be growing at almost two and a half times the speed of the US purchase market (MVI of 2.45).

SW metro areas by MVI

Contrast that with the past 5 years.  From 2009-2013, Las Vegas saw a drop of over 30% in its owner-occupied purchase loans (and from 2005-2013, the drop was nearly 80%).  Most likely, you intuitively know that Las Vegas and many other markets are poised for recovery. But without quantitative forecast data, how would you compare how fast and how much they will each recover?  And if you can't compare them, how can you figure out where to go?

How Will You Compete? Once you determine the markets—new or old—where you will compete, forward-looking market data becomes even more crucial to sustainable strategies.  Your branch placement, market share goals, and plans for sales resources depend heavily on what the opportunity will be in your markets.

vegas by tract

Las Vegas Market Map

Many business leaders and market managers feel that if you concentrate on today's performance, tomorrow will take care of itself.  If that is true, then why does it seem like so many industry players are scrambling to figure out how to compete in this predominately purchase environment? Lenders who focus on creating a solid owner-occupied purchase business will weather the storms of market volatility far better than those who focus only on the opportunity that's in front of them today.

Whether your market is Las Vegas or Milwaukee or New York or Seattle or even the southwestern part of the state of Georgia, you need to prepare for a sustainable future.  The age of Big Data makes it easier than ever to make informed, strategic decisions.  Just make sure that the big data you're seeking is forward-focused—otherwise, you'll be stuck in today and left behind in yesterday.

Check back for Part 2 of Making Big Data Matter: Every Market Isn't Created Equal: Why Market-Level Detail Matters.

Subscribe to Get Fresh Insights

Fill out my online form.