Realtor Study: Recovering Market Will Leave Out Many Former Homeowners

We may be past the era of foreclosures, but a new study from the National Association of Realtors found that one-in-four homeowners whose investments went belly up during the recession will be unlikely to re-enter the real estate market.

The good news? The real estate market is in the midst of a big comeback. The bad? Many of the people whose homes went underwater during the l of the financial crisis may not be able to take advantage of it.

According to a new study by the National Association of Realtors (NAR), nearly 1 million of the people whose homes were foreclosed upon during the financial crisis have already repurchased homes. Another 1.5 million are likely to buy again within the next five years.

But that leaves out of the market nearly 7 million of the 9.3 million who lost their homes to foreclosure between 2006 and 2014.

“They won’t be a significant factor to the housing market going forward,” NAR Chief Economist Lawrence Yun told Bloomberg Business. “The majority of the 9.3 million won’t be coming back.”

On the plus side, the 1.5 million people coming back to the real estate market still represent a significant growth opportunity for the industry. The study notes that the economic recovery will create new opportunities for real estate demand beyond normal industry demand, and that many former homeowners will become eligible for Federal Housing Administration or other home-financing programs.

“The large number of return buyers coming to the market will continue to play an important role in the market,” the report states. “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.”

On the other hand, home-buying demand will have different impacts on different states, much as it did during the recession. The study notes that California, Florida, and Arizona are seeing the most return buyers.

But one thing that will dampen the demand for many of the homeowners that went underwater is that mortgage underwriting standards have become much stricter, so people who, for example, used a subprime mortgage to purchase a home will be unlikely to re-enter the market.

“Many of them should not have gotten a mortgage to begin with,” NAR’s Yun said in his interview with Bloomberg Business.


Ernie Smith

By Ernie Smith

Ernie Smith is a former senior editor for Associations Now. MORE

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