Editor's Note: This is part two of a two-part series on suburban revival. Read part one here.
As the American population migrates to the suburbs and midsize cities, mortgage lenders and real estate professionals must re-examine their customer relationship management and lead generation strategies to better serve potential borrowers.
Current national trends, like rising home prices, are helping restore prerecession migration patterns by pushing more consumers back into the suburbs.
And while affordability issues are boosting suburbanization, overall economic conditions are also improving. Higher wages help support homeownership goals and new job opportunities are helping people move to new markets.
"The Amazon story is a great example of this trend," said Daren Blomquist, a senior vice president at the Irvine, Calif.-based real estate information and analytics firm.
"Companies are expanding, they're growing, and they're looking not just to grow where they are, but they're looking to grow in other markets," he said.
With Seattle-based Amazon on the hunt for a new city to host its "HQ2," only one of the 20 metro area candidates are on the West Coast, with many options in more affordable, mid-America markets.
Technology is also helping nurture population dispersal as more consumers have the flexibility to work remotely, meaning they can loosen their grip on urban cities and settle down farther out.
"Typically, the theory is that people are making a trade-off between the urban amenities and a short commute, versus a longer commute and a lower cost of housing — until you understand that things like telecommuting really are becoming an accepted part of a lot of work environments," said Mortgage Bankers Association Chief Economist Michael Fratantoni.
"Some people take that and move even farther away from the workplace if they're only having to commute a couple of times a week," he added.
As the economy improves, more money for consumers suggests more opportunities for homeownership. Millennials in particular, who found it hard to get out of debt or afford a home, are increasingly purchasing houses. Being that they are officially the nation's largest generation, millennials have an outsize impact on population patterns.
For the 12-month period ending June 2017, 36% of all home purchases were made by millennials, marking an all-time-high for the cohort, according to the National Association of Realtors.
Among the reasons millennials have been late to the homeownership game are delayed life cycles and student debt.
"The millennial generation seems to be hitting various road markers later than prior generations. So whether that's forming households or getting married, having kids, buying homes, it just seems to be delayed," said Fratantoni.
As the nation's population disperses, mobility increases, which could have significant effects on the housing market.
For one, homeownership tenure should decline. Back in the fourth quarter of 2001, people remained in their homes for an average of 4.27 years, according to Attom Data Solutions. Fast-forward to the end of 2017, and that figure has nearly doubled to 8.18 years.
"All of these trends I think point to a return to a little more normal homeownership tenure cycle where folks stay in their homes for about five years on average and then move up," Blomquist said.
And as homeowners start to let go of their homes, there's hope that this could signal a loosening up of the ever-tight housing supply. "As long as people start freeing up some units, the game of musical chairs can get started," said Fratantoni.
Another positive sign for inventory is the effect suburbanization has on homebuilders, which prefer open areas with more room to build.
"I think homebuilders have been very hesitant to build in those suburban, and particularly in exurban areas that are pretty far out from jobs, but I think this will start to encourage the homebuilders to start building there," Blomquist said. "In some cases, those suburban areas now have more jobs of their own that are closer by to create a little more solid foundation for demand for housing."
This suburban revival could prompt an increase in housing starts, particularly for entry-level homes that have been in short supply, according to the National Association of Home Builders.
"I think multi-family starts will probably be roughly around stable, but that we'll see increases in single-family production. I think that is the key difference," said Michael Neal, assistant vice president of forecasting and analysis at the NAHB. "From a demand side, that demand for starter homes will continue to increase."
Quote"This is a good thing overall for people who are embracing mortgage technology and the direct-to-consumer model through the web."
— Brian Faux, CEO, Morty
Labor, laws, lots and lumber — aka the four L's — are still a challenge for builders. But a suburban shift may give builders more incentive to explore outward. "The builders are going to follow where the demand is," Neal said.
As much as this population dispersal presents opportunities for the housing market, it also presents opportunities for lenders — especially those staying current with technology.
"There's a really good opportunity for lenders anytime there is a change in behavior; it opens up opportunities in new places. Those places may not be all that far from those original places, but they are essentially new markets, or submarkets," explained Andrew Schiller, CEO of Location Inc.
Borrowers starting to enter new housing markets, and even submarkets within the same counties, could be good news for lenders. But, it may mean they'll have to rethink their approaches to customer acquisition.
"I would think that those opportunities multiplying across places are both new opportunities and new challenges, because instead of being concentrated to the same places as before, or fewer places, now there are new places, and more of them, and that can be hard to service," said Schiller.
Technology will play a vital role in helping the mortgage industry target where borrowers are headed. While this may mean more business for some, it could signal a falling behind for those still using traditional customer acquisition methods.
"This is a good thing overall for people who are embracing mortgage technology and the direct-to-consumer model through the web. For someone who used to live in D.C. but is now in Arlington, Va., I can get to them just as easily and in the same ways from a marketing standpoint," said Brian Faux, co-founder and CEO of Morty, a mortgage broker headquartered in New York that's licensed in 16 states and Washington, D.C.
"Mortgages on urban properties are actually largely more difficult than doing single-family homes which exist out in the suburbs. I can target consumers just as efficiently and the mortgages they get will likely be cheaper and easier," he said.
Lenders like Morty use techniques like borrower spotlights, which survey consumers on where and why they are moving, as well as market engagement tests to assess consumers' interest in particular areas. This helps them analyze which areas are best to target with marketing and outreach.
For smaller community banks and credit unions, a physical presence could prove beneficial, as consumer dispersal suggests lenders should be broadening their referral networks and business partners. This gives local institutions an advantage as they may already have connections in smaller markets.
"Colorado is a place where there's not as much of a concentration in homes in any given area, so we hear stories how every real estate agent knows every appraiser and they know which lenders do what — there is kind-of this small-town concept which is the antithesis of this mass 'platformization' of mortgage through technology," said Faux.
However, bigger or more tech-savvy lenders that enter small markets may pose a competitive threat to local firms and force them to re-evaluate their strategies and invest in new technology. "The lenders that we see with the most growth and gain in market share are the ones who are using technology to really bridge that gap," Blomquist said.
To stay ahead of the curve, it's in a lender's best interests to stay informed on migration patterns as these trends lay the groundwork for what's to come for the industry.
"This particular issue of changing demand for urban versus suburban — whether you're a builder, or a Realtor or a lender — I think that's something that you have to pay attention to," said Fratantoni.