Dr. HousingBubble: Return of the broke homeowner

9.3M saw foreclosure, DIL or short sell 2006-2014 – ready to go now

Homebuyers burned in the housing crash are itching to buy again and the pressure is on from the industry to get them in there. It’s been seven years – so what housing crash, Dr. HousingBubble asks sarcastically.

He walks you through it.

(The National Association of Realtors) analysis found that between 2006 and 2014 some 9.3 million homeowners were foreclosed on, received a deed-in-lieu of foreclosure or short sold.  Bottom line, there were a boatload of people losing their homes when it was once thought to be the safest investment.  We are a forward looking species and the NAR realizes that many of these foreclosure veterans are ready to get back on the home buying bandwagon once again.  The problem of course is that most are buying inflated properties with massive mortgage leverage.  Debt with low interest rates is the elixir of choice.  So how big is this potential pipeline?

What is interesting about this housing recovery is that the NAR is actually lagging because of paltry sales volume.  The NAR would like to see high levels of sales versus this low volume churn at higher prices.  So I can understand when they run the numbers on the 9.3 million people that have scarred credit scores that somehow, they see an unlimited pool of potential “return buyers” as if this was as simple as someone getting divorced and re-married.

This is an interesting proposition.  I actually agree and feel many previous home buyers are itching to buy again.  The question is, do they have the income to back up current home prices without toxic mortgages?  So far, the answer is no.  You have investors, wealthy foreigners, and high income households making up the bulk of purchases.  Your typical family in high priced areas is being pushed out of the market.  The numbers appear to show something like 1.6 million potential future buyers.  That might seem like a big number but this is spread out over many years.

For a Fannie and Freddie backed mortgage, the waiting period is 7 years.  For a FHA insured loan it is 3 years.  For VA loans which make up a small portion of the pool, it is 2 years.  The big pool is with Fannie Freddie, and FHA insured loans.  7 years ago was go time for the mortgage crisis.  With all the home buying cheerleading and stock market joy ride, people have completely forgotten about the previous correction.  The clock has now reset.

Read the whole thing here.

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