Despite multiple housing market factors continue to improve, helping the overall economy recover, some consumers who have lost a home to foreclosure will likely wait many years to become homeowners again, a new study reveals.
A report Federal Reserve Bank of San Francisco shows only 30 percent of borrowers who defaulted on their mortgage in 2001 had returned to the housing market in the last decade. This percentage significantly decreases depending on how delinquent owners were, as only 10 percent of homeowners with a serious delinquency were eligible for a mortgage within 10 years of the initial foreclosure process.
Economic factors, including unemployment and consumer confidence, continue to influence housing market factors. However, the economy heavily relies on the health of the housing industry, as it continues to slowly move forward.
"Overall economic conditions appear to play an important role in allowing borrowers who have defaulted to return to the market," according to San Fran Fed researchers. "When we control for factors such as local unemployment rates and past house price appreciation, we find that these variables influence the rate at which defaulters come back to the mortgage market."
Lending standards, credit present other obstacles
While foreclosed houses can greatly affect a buyer's ability to make the investment financially, stricter lending standards that were put in place post-housing market slump have also made it more difficult for even qualified borrowers to get approved for a loan. The FRBSF reports that access to credit is one of the greater factors working against many borrowers seeking homeownership, especially those who have credit scores that have been lowered by a previous foreclosure.
Higher home prices may also contribute to buyer hesitation, but mortgage rates have been lingering near record-low levels throughout much of the second half of 2012, providing prospective buyers, even those who have previously defaulted, high affordability. On average, a default can prevent consumers from having a decent credit score for up to five years, though the report notes after five years, borrowers who do choose to return to the mortgage market have improved their credit score by more than 100 points.
As lending standards are expected to become less strict, those considering making the investment may be provided an opportune time before the end of 2012.