Formerly Distressed Homeowners Struggle To Re-Enter Housing Market

Washington, DC, April 21, 2015—Nearly a decade has past since the start of the foreclosure crisis, which means that formerly distressed homeowners may now be re-entering the housing market; however, less than one-third of families who lost their homes to foreclosure or other distress events in the past decade are likely to become homeowners again, according to an analysis by the National Association of Realtors (NAR).

Nearly 9.3 million homeowners went through a foreclosure, received a deed-in-lieu of foreclosure or short sold their home between 2006 and 2014. Of those, about one million have likely already purchased a home again and another 1.5 million are likely to become eligible to purchase again with the next five years. However, most of the rest won’t be eligible to borrow or won’t have the desire to buy again, NAR found.

Real-estate agents and economists have been anxiously awaiting the return of formerly foreclosed upon homeowners, whose re-emergence could boost the housing market and the broader economy.

But NAR chief economist Lawrence Yun warns that the pool may not be as large as some are expecting. Many won’t return because they are unlikely to improve their credit or income enough to qualify for a mortgage. Even those who have decent credit will be held back by “overly stringent” lending standards. He estimates that 490,000 buyers who are or will be eligible for mortgages backed by the Federal Housing Administration and similar programs won’t qualify unless there is a loosening of stricter-than-normal requirements. Others, won’t return due to lack of desire to own a home after being burned during the crash.

The housing markets in California, Florida and Arizona are expected to benefit most greatly by the buyers who do return.