Tag: California

Buyers Return to the Housing Market

The extract below is from the National Association of Realtors

Default rates jumped in 2006 and between then and 2014 nearly 9.3 million borrowers were foreclosed on, received a deed in lieu of foreclosure, or short sold their home.  To date, nearly a million of these former owners have returned to the market and many more of these “return buyers” are already qualified, but waiting.  Overlays and credit impairment have held a significant number back and could impact thousands more potential return buyers in the coming years.   Roughly a third of formerly distressed owners will ever return to the market.


NAR Research analyzed these former owners taking into account multiple factors:

  • The time a buyer must wait to be re-eligible for a financing program with timing like the FHA
  • The time necessary to repair the distressed seller’s credit
  • Whether the distressed seller’s credit profile, at the time of purchase, was unacceptable by historic, sound underwriting standards
  • Whether the return buyer would meet credit overlays in the current stringent environment
  • The time needed to build down payment for a purchase
  • Whether the buyer has the desire to own again


This analysis revealed that the long time to repair credit scores, time to build down payment, and overlapping post-distress factors limit a former owner’s ability to return.

  • Since 2006, 950,000 of these former owners likely already purchased a home again
  • However, tight conditions in financial markets limit access to 350,000 of these FHA re-purchase eligible borrowers
  • An additional 1.5 million return-buyers will likely purchase over the next five years as they become eligible, but overlays will act as headwinds for 140,000.
  • As many 260,000 of current and future program eligible borrowers may not return as their former ownership was facilitated by excessively loose lending in the mid-2000s

At the state level,

  • California has been the largest benefactor of return buyers followed by Florida.
  • Arizona, Nevada and Georgia also made the list as markets like Phoenix, Las Vegas and Atlanta experienced sharp increases in distress among homeowners during the housing downturn.
  • Despite the relatively steady housing markets in Texas and solid price growth, the sheer size of the state put it in the top 10.


Over the coming nine years, the states expected to benefit from the trend will remain the same, though some will juxtapose rankings.  Florida will nearly catch California, Illinois and Georgia will rise modestly, while Nevada will ease closer to the bottom of the top 10.  Virginia will leave the list and be replaced by North Carolina.  The shift in the future trend will also reflect a larger share of prime borrowers that were dragged into distressed events as result of price declines and weak employment, rather than risky lending.


The large number of return buyers coming to the market will continue to play an important role in the market.  This demand is in addition to nascent household formation and the normal baseline demand from trade-up buyers.  While overlays will hamper some borrowers, those overlays will likely normalize in the future.  Mitigating some risk to Federal programs is a stronger regime of regulation on underwriting and the fact that most return buyers are of prime quality.  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.

The country and housing market are still healing from the collapse of the foreclosure and distress sale wave.  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.