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cover story By Mark Lieberman R ecent statistics suggest the real estate industry—particularly the residential sector—is on course for sustainable progress. Where does housing's recovery stand now, and what economic factors are helping or hindering its progress? More importantly, how can lenders and originators maximize efforts to capitalize on emerging trends in the marketplace? Just Jobs T he state of real estate is influenced by a variety of catalysts and inhibitors, and the No. 1 issue in housing today? Jobs. Because unemployment statistics have a direct correlation to homebuying activity, it's clear that areas experiencing dropping unemployment rates are on track for home sales gains, and lenders accessing the right analysis will be optimally positioned for opportunities in the marketplace. "Originators should be following unemployment numbers, as there has historically been a correlation between job growth and home purchases," advised Rick Sharga, EVP of Carrington Mortgage Holdings. "Lower unemployment rates suggest that a market may be in a transitional phase from relatively low home purchase activity to higher levels." Sharga suggested some tools lenders can use, specifically economic data and reports. Indeed, recent reports on home prices—the Case-Shiller home price index—match up closely with unemployment rates and job numbers in the cities tracked by the index. Of the nine cities in which, according to the Case-Shiller Index, prices fell month-month in November 2012, for example, seven showed a drop in employment, based on data from the Bureau of Labor Statistics. On a trend basis, three metro areas in Nevada—Las Vegas, Reno, and Carson City—are showing strengthening labor markets. The unemployment rates in those three areas— though still hovering at 10 percent—improved 3.3, 2.8, and 2.7 percentage points, respectively, in the last year, according to the Bureau of Labor Statistics. The unemployment rate is a complicated calculation—relying both on the number of persons unemployed and the total labor force, unemployed and employed. If both the number unemployed and the labor force increase, as might happen as the economy improves, the rate will increase. An alternative measure would simply be the increase in employment. By that standard, the fastest-improving market in the country is Lafayette, Louisiana, the only metropolitan statistical area (MSA) in the country where employment grew by 10 percent or more in the last year, followed by Santa Cruz, California (5.8 percent); Pascagoula, Mississippi (5 percent); Santa Rosa, California (4.7 percent); Austin, Texas (4.6 percent); and Oklahoma City, Oklahoma (4.5 percent)—the only areas of the country where employment grew by 4.5 percent or more in the last year. Despite positive momentum in some regions, however, David Donhoff, real estate advisor with Leverage Planners, emphasized the lengthy timeline that's expected for a robust, full recovery for housing and the broader economy. "Stubbornly high levels of unemployment—and even higher levels of underemployment—are preventing an even more robust housing market recovery," Donhoff noted. "Credit remains tight (new lending rules from the CFPB ensure that it will remain that way for the foreseeable future), and uncertainty over larger economic issues—the effect of tax increases and ongoing debates about the federal deficit and the debt ceiling—are damaging consumer confidence, which has a definite impact on long-term financial commitments." Key Takeaway: Mortgage professionals should monitor unemployment data in the major MSAs during the course of the year, closely observing regions and cities that display dropping unemployment rates, as they are likely to reflect above-average levels of home purchase activity as 2013 unfolds. Cities including Lafayette, Louisiana; Santa Cruz, California; Santa Rosa, California; Austin, Texas; and Oklahoma City, Oklahoma, showed the strongest increases in employment during 2012. Investing In the Future "O ne of the biggest trends in the housing market today is the hedge fund and private equity firm buyers who have pushed out the first-time homebuyer from buying an affordable home using an FHA loan," said Aaron Mighty, a broker with Mighty Real Estate in Orlando, Florida. For lenders and originators, the stimulation of investor interest in housing means reviewing—and adapting, as needed—current strategies and processes for capitalizing on current market opportunities. "With hedge funds having so much cash on hand from their investors, they are willing and able to offer sellers—whether bank-owned REOs or individuals—over asking price for their home," Mighty added. Meanwhile, Lanny Baker, CEO and president of ZipRealty, Inc., in Emeryville, California, had a warning for lenders operating in a market that's rife with interest from investors, noting that "with home prices down . . . in most markets and large pools of capital seeking to buy into residential real estate, there is an unusual preponderance of all-cash buyers in the market today, meaning there may be fewer than the usual number of loans 'needed' per given number of home sales, which hampers lenders' new loan potential." Key Takeaway: Lenders and originators should heed the effects of housing affordability, deploying strategies that reflect rising investor interest in the real estate market, while seeking to address challenges created for first-time buyers facing a more competitive housing environment. With home prices staying lower in many markets and the expansion of available capital, hedge funds and other potential investors will continue to buy into residential real estate in a meaningful way. The Impact of Inventory E valuating the influence of housing inventory on the mortgage banking industry, The M Report | 23