Las Vegas Tops the List Of Hot Lending Markets, - And of Risky Ones,

Lenders planning their business strategies are obviously seeking hot regional markets where they can concentrate their marketing efforts. What is not so obvious, though, is that hot markets can also be risky.

At the recent conference of the Mortgage Bankers Association of America in San Francisco, Anton E. Haidorfer, an economist for the group, ranked Las Vegas as the hottest lending market for next year, because a burgeoning construction market is turning out large numbers of homes that will need financing. But in his risk evaluations, John Gruenstein, director of forecasting and modeling for PMI Mortgage Insurance Co., ranked Las Vegas as the highest-risk market for lenders.

The reasoning: The Las Vegas market is so torrid and geared for high speed that even a moderate slowdown could be a blow in a market geared for high speed. PMI says a balance of supply and demand for homes is important, and that even a small drop in hot demand could cause a troublesome imbalance.

Some hot markets that carried favorable risk ratings were Tampa, which was 12th hottest and had the fifth-lowest risk rating, and Houston, 10th hottest with the ninth-lowest risk rating. PMI rated the Kansas City area with the lowest risk, and it was No. 17 in terms of hotness among the 59 metro areas covered.

The MBA is preparing profiles of each market and provided conference attendees with one covering Atlanta as a sample. It gave a good view of the considerations in judging the desirability of a market for both hotness and risk.

"Atlanta ranks third out of 59 MSAs (metropolitan statistical areas) in terms of opportunity/risk for originating mortgages in 1997," the profile said. On the hotness index, Atlanta was No. 4, but favorable risk characteristics pulled it up a notch on the opportunity/risk calculation.

Foreclosures, the profile pointed out, have been trending downward since 1991, and home prices have been improving. "Higher home prices lead to lower loan-to-value ratios and increased equity," according to the profile.

After adjustment for risk, Las Vegas remains the most desirable market in the MBA's evaluation, while Salt Lake City drops from second to fifth. Other areas moved up or down the list only slightly after risk adjustment.

Mr. Haidorfer pointed out that the lowest-risk areas tend to be in the center of the United States, while the highest are on the East and West coasts. The central metro areas are on average about 30% smaller than the coastal metro areas.

He also said that the California market was improving rapidly. The eight largest risk reductions for 1997 are all for California metro areas, with San Jose leading the list.

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