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Boomerang Buyers – an Underestimated Force?

Boomerang Buyers

Many observers have discussed the potential of so-called “boomerang buyers” – persons who lost their homes during the recession but are interested in again becoming homeowners.  While some people doubt whether this group can significantly impact the market, others point to data showing that boomerang buyers could soon be a real market force – at least if credit becomes more widely available available and the economy continues to expand. 

The Credit Recovery after the Housing Crisis 

The rise of boomerang buyers could mean greater sales for flippers endeavoring in fix and flip projects to eventually sell to these house hunters. 

Lenders are indeed beginning to accommodate more applicants who previously lost their homes to foreclosure during the housing crash, The Wall Street Journal reported. 

“The dark shadow of the foreclosure crisis is finally beginning to fade,” said Mark Zandi, chief economist at Moody's Analytics. “That should be a positive for single-family housing and, by extension, for the broader economy.”

The National Association of Realtors (NAR) estimates that almost 9.3 million homeowners underwent a foreclosure between 2006 and 2014.  More specifically, such persons either underwent a foreclosure, received a deed-in-lieu of foreclosure, or “sold short” their property.  Many of these persons have now likely had time to repair their credit, and their confidence, and may thus be in a position to re-enter the housing market.

Indeed, even though a foreclosure will stay on consumers' credit report for seven years, for many consumers their credit score can recover much sooner.  If consumers keep the rest of their credit report in good standing and isolate negative items like foreclosure, their credit score could recover in as little as two years.  With some homeowners affected by the foreclosure crisis already past the seven-year mark, some analysts are saying 2015 may be the year that they dive into the housing market again. 

How Many Buyers Will Return?

NAR analyzed the group of persons who recently underwent a foreclosure event and estimated that nearly 1 million former distressed owners of “prime” quality (as opposed to sub-prime borrowers, who formed the first wave of the crisis) have already become re-eligible for Federal Housing Administration or similar refinancing programs. 

“Now fueled by a gradually improving economy and the strong rebound in home prices, some of these former distressed owners have returned to the market, and more will likely become eligible in coming years,” said NAR Chief Economist Lawrence Yun.

NAR estimates that approximately 1.5 million more buyers “will likely buy again” over the next five years.  These buyers would represent less than 20% of persons who lost their homes in the housing crash.  NAR estimates that California, Florida and Arizona would likely see the largest share of return buyers.

Other believe the impact of boomerang buyers will be even greater.  Real estate data site RealtyTrac forecasts that 7.3 million of these homeowners could potentially qualify for a home again, with many coming back starting this year.  RealtyTrac believes that more than 1.5 million potential boomerang buyers are expected to go into the market in 2015 and 2016  -- thus reaching the NAR-forecast number much sooner thatn the five-year timeline NAR projects. 

As homeowners realize that homeownership is still a possibility for them, they could see 2015 and years after as a second chance, said Chris Pollinger, senior vice president of sales at First Team Real Estate based in Southern California. 

"The housing crisis certainly hit home the fact that homeownership is not for everyone, but those burned by the housing crisis should not immediately throw the baby out with the bathwater when it comes to their second chance at homeownership," said Chris  Pollinger, senior vice president of sales at First Team Real Estate based in Southern California, according to RealtyTrac. 

The FHA previously announced it would reduce mortgage insurance premiums, which could alleviate the borrowing costs for boomerang buyers and other house hunters.  NAR attributes the forecast increase in boomerang buyers not only to consumers improving their credit, but also the changes underway in the models used by the credit scoring agencies.  The use of new credit scoring models such as Vantage Score 3.0 and FICO 9 may help improve the ability of boomerang buyers to become homeowners again.   

Realty Mogul offers equity securities through North Capital Private Securities Corp., member FINRA/SIPC

IMPORTANT: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Hyperlinks to sites outside of this domain do not constitute an approval or endorsement of content on the visited site.

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