America’s Most Affordable Cities Offer Opportunities for Lenders
Banks have been returning to construction lending as the housing market improves
According to analysts such as Todd L. Hagerman of Stern Agee, banks are once again seeing steady growth in the demand for construction & development loans. Average market cap in the homebuilding sector alone has risen about 140 percent since 2012. Hagerman expects that this trend, along with an improving real estate market and tools like enhanced credit underwriting, collateral appraisal, and concentration risk limits should enable lenders to achieve significant C&D loan portfolio growth. Active management of the loan process via a tool like ECL Software’s Fund Control suite should also help promote success.
But where to begin looking for markets to invest in? Forbes magazine’s list of America’s Most Affordable Cities can help point lenders in the right direction. The list highlights 20 of the most affordable big cities in America, and may indicate possible markets for multifamily housing projects, a sector which big banking executives like Claude Davis, president and CEO of First Financial Bankcorp, has identified as a growth sector on a national scale.
Creating the List
Forbes staff started with a list of the 100 largest metropolitan areas in the country, and then collected data to rank them in order of affordability. The Housing Opportunity Index from the National Association of Home Builders and Wells Fargo was used to determine how many homes in each city were affordable to residents making the median income. Next, the Cost of Living Index from Sperling was consulted to determine how the cities fared in terms of affordability of everyday goods and services. Finally, Forbes staff weighted this data using methodology based on that used by the Bureau of Labor Statistics to create its Consumer Price Index. Unfortunately, several major cities including New Orleans, Kansas City, Nashville, and Omaha had to be excluded due to insufficient data.
The finished list of America’s Most Affordable Cities may point more builders and lenders to the Midwest in their search for opportunities. A quarter of the cities on the list were located in Ohio, and over half were located in the Midwest. However, a northeastern city claimed the rank of the most affordable city in America. In Buffalo, NY, 88.5 percent of residents can afford to purchase a home, and cost of living is 4 percent lower than the national average. Of course, wages are also lower than average in this former industrial hub. However, local efforts have been successful in bringing in new employers with tax incentives and the city looks poised for growth.
After Buffalo, the next most affordable cities were Memphis, Cincinnati, Dayton, and Knoxville. To see the complete list of cities visit Forbes magazine, and to explore how investments in these cities might affect your C&D portfolio plug some scenarios into the risk analysis feature of your ECL Fund Control software suite.