Tag: Home Buyers

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.

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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

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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.

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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.

Implications

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.

Buy a House, Get a Visa

WSJ’s Nick Timiraos details a proposed plan in which foreigners who spend $500,000 in cash on U.S. real estate would be given visas. To fuel this demand, the proposed measure would offer visas to any foreigner making a cash investment of at least $500,000 on residential real-estate-a single-family house, condo or townhouse. Applicants can spend the entire amount on one house or spend as little as $250,000 on a residence and invest the rest in other residential real estate, which can be rented out.

The measure would complement existing visa programs that allow foreigners to enter the U.S. if they invest in new businesses that create jobs. Backers believe the initiative would help soak up an excess supply of inventory when many would-be American home buyers are holding back because they’re concerned about their jobs or because they would have to take a big loss to sell their current house.

“This is a way to create more demand without costing the federal government a nickel,” Sen. Schumer said in an interview. The provision would create visas that are separate from current programs so as to not displace anyone waiting for other visas. There would be no cap on the home-buyer visa program.

The measure could also help turn around buyer psychology, said mortgage-bond pioneer Lewis Ranieri. He said the program represented “triage” for a housing market that needs more fixes, even modest ones.

But other industry executives greeted the proposal with skepticism. Foreign buyers “don’t need an incentive” to buy homes, said Richard Smith, chief executive of Realogy Corp., which owns the Coldwell Banker and Century 21 real-estate brands. “We have a lot of Americans who are willing to buy. We just have to fix the economy.”

 

Copyright 2011 Dow Jones & Company, Inc. All Rights Reserved

Obama To Sign Bill Extending Homebuyers Credit

By the time you read this, President Barack Obama will have signed a bill that expands a popular homebuyers tax credit and extends unemployment benefits.

Congress on Thursday completed work on the $24 billion economic package that seeks to help out the millions who have lost jobs and have been unable to rejoin the workforce. The White House announced Obama’s intention to sign the bill on Friday, shortly after Congress finished the legislation.

Under the measure, an $8,000 tax credit for first-time homebuyers would be extended for seven months and expanded with a $6,500 credit for some prospective homebuyers who already own homes.

The House passed the bill on a 403-12 vote Thursday, a day after the Senate ended a monthlong stalemate with a 98-0 vote. With some 7,000 people exhausting unemployment benefits every day and the $8,000 tax credit for first-time homebuyers set to expire at the end of November, President Barack Obama is expected to quickly sign it into law.

The $24 billion package also contains tax credits aimed at struggling businesses.

The IRS says some 1.4 million people applied for the homebuyers credit through August, helping enliven the moribund housing market. The legislation would extend the program through June of next year, as long as the buyer signs a contract by the end of April. It also offers a $6,500 tax credit to those who have lived in their current residence at least five years.

The measure doubles the income ceiling for eligible individuals to $125,000. Homes must cost less than $800,000 to qualify.

Tax Credit Extension for First-time Home Buyers

Published by Community Loan and Housing Program Center
The Obama administration blessed the proposed extension of the $8,000 tax credit for first-time home buyers on Thursday as the Senate neared a compromise that would extend the credit to more potential buyers.

Here’s a primer on who might be able to get the expanded credit, and what it might do for the housing market:

Who gets the credit, and how much can they claim? First-time home buyers are eligible for up to $8,000 on the tax credit, which is the same as the current credit. The Senate version of the bill creates a new credit of up to $6,500 for homeowners who have lived in their homes for five years. That provision would start on Dec. 1.

How long will it last? The tax credits would expire on April 30, 2010, but home buyers under contract by April 30 would be able to qualify as long as they complete the sale within 60 days. Keep in mind, this would be the third iteration of a home buyer tax credit that has been in place since mid-2008. Sen. Johnny Isakson, the Georgia Republican who has been a staunch advocate of the credit, promised that this would be the “last extension” of the credit, according to Dow Jones Newswires’ Corey Boles. “Tax credits like this only work by creating the sense of urgency to take advantage of it,” Sen. Isakson said.

Will the tax credit do anything for the high-end of the market? Probably not. The tax credit phases out for home buyers with incomes above $125,000 for single filers and $225,000 for married couples. Also, homes that cost more than $800,000 aren’t eligible for the credit. Overall, the tax credit is likely to generate only a modest further increase in home sales, says Tom Lawler, an independent economist in Leesburg, Va.  For many well-paid people, he says, it won’t make a big difference: “A household earning around $150,000 is likely to buy a home of $500,000 plus, so a $6,500 credit won’t be much of a factor in pushing such households off the fence.”

What other limits does the credit have? People under the age of 18 are not eligible. Last week’s congressional hearings spotlighted concerns about misuse of the credit, including some 500 tax filers under age 18 who had claimed the credit.

So will the expanded tax credit help sales? That’s a point of debate among housing analysts and economists. Alec Phillips, economist at Goldman Sachs, notes that expanding the credit to people who already own homes doesn’t necessarily make a big dent in the supply of housing on the market. “If these ‘step-up’ buyers already own a home and sell it to finance the new one, that hasn’t reduced the amount of inventory for sale,” he says.

But Mark Zandi, chief economist at Moody’s Economy.com, thinks the extension is a big deal. Based on a preliminary analysis, he said it should mean at least 500,000 in additional sales, atop the 400,000 he estimates already have been generated by the tax credits (twice the Goldman estimate). “The tax credit is not a very efficient tax cut, but not extending it would do significant damage to the still fragile housing market,” Mr. Zandi said.

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