Get ready: almost a million former home owners who underwent a foreclosure, deed-in-lieu of foreclosure, or short sale have already purchased a home again, and an additional 1.5 million are likely to become eligible to buy over the next few years:
Former home owners who lost their home to a foreclosure or a short sale are re-entering the housing market. Some housing analysts believe they could provide a big boost in housing demand for years to come.
Almost a million former home owners who underwent a foreclosure, deed-in-lieu of foreclosure, or short sale between 2006 and 2014 have already purchased a home again, according to new research from the National Association of REALTORS®. An additional 1.5 million are likely to become eligible to buy over the next few years.
California, Florida, and Arizona are expected to see the largest number of return buyers within the next decade, according to NAR’s research.
However, damaged credit profiles will likely prevent millions more of the nearly 9.3 million home owners who lost their home to foreclosure or short sale between 2006 and 2014 to re-enter the housing market in the coming decade, NAR finds.
For many former home owners, the impact of a distressed sale on their credit score has limited their ability to return to the housing market.
“The extended time needed to repair credit scores or save for a down payment, combined with other overlapping post-distress factors on credit quality such as missed auto loan or credit card payments, will limit the ability for many to buy in the current credit environment,” says Lawrence Yun, NAR’s chief economist.
The use of new credit scoring models – such as Vantage Score 3.0 and FICO 9 – may help improve the ability of some of these buyers to become home owners again — particularly models that now take into account on-time rental and utility payments.
“The deep wounds inflicted on the housing market during the downturn are finally beginning to heal as distressed sales continue to decline and home prices in some parts of the country have bounced back to their near-peak levels,” Yun says. “Borrowers with restored credit will likely have the ability and desire to own again, encouraged by the long-term benefits homeownership provides in a stronger economy and more stable job market.”