It is now the 4th quarter of 2012 and the nation has just reported over 6 months of positive housing data. Almost every analyst and industry professional is convinced that housing definitely turned a corner and we should see homes prices continue to rise conservatively for the next few years.
However, with the recent elections, not everyone is so sure how the next few years are going to work for the nation’s economy. It is safe to say that even though the housing market is finally improving, America is not out of the woods from this latest recession and we have a growing debt issue that still needs to be addressed.
Since the housing market plays such a huge role in overall economic health, the nation needs a thriving real estate market to have a shot at climbing out of the hole it’s in. Which begs the question:
How much could the housing market possibly improve with the poor job market, high unemployment and the tight lending market?
My answer to this question today is: Second Chance Homebuyers.
Before I explain who second chance homebuyers are, let’s first review the housing bubble. The real estate market went on steroids between 2004 and the summer of 2006. Some markets saw home prices increase over 40% in less than 2 years. Depending on your local market, home prices peaked in areas about 2006-2007. Everyone knew there was a price correction coming, and real estate began to sputter and see some signs of increasingly fewer buyers. Fall of 2008 came and the stock market took a major hit and sealed the fate for housing for the next 5 years. 2009 was the first year we saw massive amounts of defaults on mortgages. Most markets saw a peak in mortgage defaults in 2010, then even fewer defaults in 2011, and now in 2012 the vast majority of markets have seen a major reduction in homeowners entering the foreclosure process. 2013 is on pace to be at near pre-bubble levels of the amount of homeowners defaulting on their mortgage.
The important detail from this housing recession is to note that 2010 appears to be the peak year when the most homeowners lost their homes to foreclosure or did a short sale with their lender to sell the home. That peak was almost 3 years ago.
Now back to those second chance homebuyers.
A second chance homebuyer is a homebuyer who has previously lost their home to foreclosure or short sale, and is now getting approved to purchase a home again. Many of them only have to wait 2-3 years before they can re-qualify for a home loan, and not just any home loan but good loans that only require 3.5% down; and–if rates stay similar–a chance to get in below 4%.
One of the most common home loans in America is called an FHA loan. If a homeowner lost their home to foreclosure or short sale, they only have to wait 3 years from the date of the sale or the date of when the home transferred back to the bank. The wait is only 2 years for a VA loan.
2013 is 3 years from the peak of when most people lost their home to foreclosure. It is not hard to qualify for an FHA loan and therefore, I expect to see a new wave of homebuyers impact the market over the next few years. Lenders are already approving new loans for these buyers.
We all know people who have lost their homes to foreclosure, who have had to rent a home the last few years. Most of those I speak to are very anxious to get back into homeownership. Rental prices are significantly higher than they were a few years ago, and in many markets it is cheaper to own than it is to rent.
Second chance homebuyers will begin to have a huge impact on the housing market over the next few years. They represent a big segment of our population and will help keep the housing sales strong despite a sputtering economy.