Recent research from the National Association of Realtors (NAR) shows that distressed buyers are slowly but surely making their way back to the housing market.
In fact, according NAR’s report, nearly 1 million of borrowers who were foreclosed on, short sold their home or received a deed in lieu of foreclosure over the last eight years have already purchased a new home. Another 1.5 million are expected to do so over the next five years, as they once again become eligible for financing.
Approximately 350,000 borrowers eligible for re-purchase are currently unable to do so due to tight financial markets, and as many as 260,000 borrowers may never return to homeownership at all, the report says, because their former loans were backed by loose lenders.
To get this data, NAR studied various factors, including the time required to repair credit scores, the time borrowers must wait to be re-eligible for financing, the borrower’s credit profile in relation to current underwriting standards, the time required to save for a down payment and the buyer’s overall desire to buy or own a home again.
In the end, the NAR report revealed some interesting facts, including which states are more popular with these returning homebuyers. It seems that California has seen the most re-purchase buyers to date, while Florida came in at a close second. Other top states included Nevada, Arizona, Georgia and even Texas, despite current high prices in the marketplace.
Moving forward, the report states, Florida will likely catch up to California, while Illinois and Georgia will see jumps in return buyers. North Carolina is also expected to join the list of states popular with re-purchasers, and Virginia will likely drop off entirely.
Changing federal regulations on underwriting, as well as new credit scoring models, may help many of more of these distressed buyers return to market.
As the report says, “New credit scoring models that utilize rent and utility payments can help shed light on the risk posed by these return buyers. These innovations will improve the propensity of these borrowers to return and gain access, while reducing their risk to the FHA, VA, GSEs, and private mortgage insurers.”
As more than 9 million borrowers lost their homes between 2006 and 2014, it will take some time for the market to fully recover. Over the next nine years, however, a significant number of return buyers should rejoin the market.
“The country and housing market are still healing from the collapse of the foreclosure and distress sale wave,” the report reads. “As home prices rise and the economy improves, these trends will abate, but there remains a large reserve of former owners who have the desire and ability to return to the market. New credit models and financing opportunities combined with fundamental changes to the mortgage origination process will help to ensure that soundness of the market as these borrowers return.”
Head to NAR to see the report.