Economists are anticipating a new wave of homebuyers from the group of Americans who lost their homes during the housing crisis. Bad credit scores have improved since then, and many have also regained confidence about owning a home. According to some experts, these so-called “boomerang buyers” will be a critical component of the housing market over the next few years.
Millennials and first-time homebuyers have been providing market momentum in recent years, but that’s expected to change somewhat. According to economist Kwame Donaldson, of Moody’s Analytics, “The next phase of the housing recovery will be partly driven by people in the prime age group” of 35 to 64 years old who’ve lost a home, and have finally overcome their fear of owning again.
Millions Lost Homes During Crisis
Much of the housing crisis was caused by loose underwriting standards and the popularity of subprime mortgages. When a buyer didn’t qualify for a conventional loan, they could get a subprime loan, often with interest-only payments. That worked out well as home prices went up. Homeowners could simply refinance their way out of that loan. But when home values took a nosedive and millions of Americans lost their jobs during the Great Recession, many got behind on payments and lost their homes.
As reported by USA Today, more than 7 million people lost homes to foreclosure from 2006 to 2014. (1) Another 2 million people lost their homes to short sales. When you have a foreclosure on your record, you have to wait at least seven years to apply for a new mortgage. The time-line for a short sale is usually about three or four years.
Foreclosures Dropping Off Credit Reports
Experian did a study for USA Today, that shows the foreclosure and short sale notations dropped off credit reports for 2.8 million people between January 2016 to November 2018. And, about 12% of those people bought homes with a new mortgage. Another 53% now have good credit scores, but haven’t bought yet. Experian Vice President, Michelle Raneri, says, “That’s 1.3 million people who have really good credit. Maybe they don’t realize they would qualify now.”
Brokers say, the fear factor is still affecting many potential boomerang buyers. Re/Max broker, Jessica Reinhardt, told USA Today, some will tour homes but retreat from a home purchase and sit on the sidelines for several months. They eventually return to look again, and will often finally buy a home. But it takes them a while. Some also trim their American Dream to a lower-cost home, with a safer, more manageable monthly payment.
The increase in home prices could make that last option difficult. The S&P CoreLogic Case Shiller-Index shows that home prices have climbed out of their Great Recession ditch, and have risen more than 10% above their 2006 peak. That’s making it harder to find a lower-priced home and is causing concern among some people about a new housing bubble. Real estate experts say that concern is unfounded however, because the underwriting standards are much better than they were before the housing crisis. Home price growth has also gotten much slower, and mortgage rates are lower, which could pull some of those boomerang buyers back off the sidelines.
Boomerang Buyer Markets
Areas where we might see more boomerang buyers are markets that had a larger percentage of foreclosures. In a top ten list of metros with the most foreclosures, nine of them are in Florida with Miami in the top slot. Las Vegas is the only one outside of Florida. But of course, there were foreclosures all over the country.
In a recent report on home buyers, NerdWallet also asked people who experienced foreclosures what they feel about owning again. It found that more than 60% of those people have not bought a home, and 20% of them never want to own another home.
The Balance offers some advice for those who do. It recommends that boomerang buyers pay off as much debt as possible because lenders want to see that you’re not going to overextend yourself. If you don’t have a 20% down payment, check into an FHA loan. That only requires a 3.5% down payment. Find out what’s on your credit report ahead of time, and dispute any discrepancies. Keep your mortgage payments lower than the lender’s maximum. That will give you some financial breathing room. (3)
Future Home Buying Plans
NerdWallet says that only 6% of boomerang buyers plan to buy this year, but the percentage shoots up to 39% for those who intend to buy in the next three years. 58% says it’ll happen with in the next five years. Most of the others are still nursing their wounds, and are content to leave things the way they are… as renters.
(3) Steps to Home Buying Again: The Balance