Feb102015

Boomerang buyer myth refuses to die

Only 10% of borrowers with a prior serious delinquency regain access to the mortgage market within 10 years of their default.

boomerang_missedHope for a better tomorrow is a basic human need; people who give up hope often become deeply despondent and even suicidal. People look for hope wherever they can find it, and over the last eight years, people who work in real estate, homebuilding, sales, and so on, needed hope for a better tomorrow because the current situation consistently sucked.

Anyone out of work over the last several years spent most of their time scouring job boards and résumé spamming job posting sites, and since they were already on the web, most would also check the news for any scrap of good news to keep their spirits up — I know because I was one of those people. Even those who managed to keep busy during the real estate recession endured a decline in their income, and they too wanted better news to kindle hopes of more money next year.

Boomerang Buyer Hope

In 2013 and 2014 the real estate industry pinned their hopes on the appearance of large numbers of boomerang buyers, former owners who qualified for mortgages again. The common narrative was that these buyers would return in large numbers and provide a huge influx of demand that would put homebuilders back to work and generate commissions for realtors. It didn’t happen.

Back in 2012, I wrote that the Pent-up demand from boomerang buyers may not materialize. The federal reserve studied this group in great detail, and they noted that only 10% of borrowers with a prior serious delinquency regain access to the mortgage market within 10 years of their default, yet despite this fact, out of desire for it to be different this time, housing analysts and the financial media promulgated the idea that 50% or more of these buyers would return.

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After two straight years of bitter disappointment, it would be logical to assume the financial media would quietly drop this failed meme. Perhaps a few ambitios reporters might even write a story explaining why the idea failed (it failed because only about 10% will ever come back just as the federal reserve study pointed out). A really ambitious reporter might even discuss why the fantasy of the Boomerang buyer appeared when there was absolutely no evidence that these people would come back. A probing exposé that calls out the shoddy reporting of others rarely gets past an editor though (fortunately, I don’t have an editor).

I hold out hope that this meme will finally die — Perhaps three strikes and you’re out. If 2015 is the third strike, perhaps this idea will disappear, but if 2015 is a really bad year, people will be desperate for hope, even feeble hope, so perhaps this meme may find a second life.

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Boomerang home buyers are coming back

By Ben Rooney, January 27, 2015

Millions of Americans who lost their homes during the foreclosure crisis are now poised to become homeowners again.

Are they really “poised?” Do they have the good credit, solid job, and down payment necessary to buy again? Many of those who went through foreclosure already passed the mandated waiting periods, but they don’t have the desire or the ability to buy a house.

That’s according to a new report from RealtyTrac, which estimates that 7.3 million so-called “boomerang buyers” will return to the U.S. housing market over the next eight years.

Foreclosures and short sales skyrocketed after 2007 during the darkest years of the financial crisis and Great Recession. But with the economy gaining momentum and hiring picking up, many foreclosed on homeowners are in a position to buy again.

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Half a million home buyers: Homeowners can recover from foreclosure in as little as three years, but seven years is the “conservative” amount of time it takes to rebuild a credit score, according to RealtyTrac. That means many homeowners who lost their homes in 2007 should be able qualify for a new home loan this year.

This shows how desperate people are to keep this story alive. The actual punishment time varies by lender and by borrower circumstance, but it’s generally about three years. The boomerang buyer meme first showed up because many people reached the three-year mark. When these buyers didn’t materialize, now the analysts are looking at the more conservative seven-year mark, which really doesn’t mean anything.

If the boomerang buyers were waiting for some statutory limitation, they already would have returned to the market. They didn’t, and they aren’t going to.dont_bother_to_knock

More than 500,000 people will fit this description in 2015, according to RealtyTrac. The number jumps to 1 million next year, peaks at 1.3 million in 2018, then tapers off by 2022.

A home in Vegas: RealtyTrac identified several markets with the most potential for boomerang buyers.

They include cities that were hit hard by the foreclosure crisis, but now have home prices that are affordable for the median homebuyer.

Las Vegas is arguably the epicenter for boomerang buyers. Several hard hit cities in California, such as Merced, Stockton and Modesto, are also prime candidates.

Realistically, most houses in Las Vegas will end up in the hands of new buyers. Las Vegas historically enjoys strong population growth, and as new people move into the area, it’s these buyers who will buy homes. I would personally benefit if droves of boomerang buyers bid up house prices there, but I don’t see that happening.

Retirement cities: Boomerang buyers are likely to be from either Generation X or the Baby Boom generation, according to RealtyTrac.

So cities that attract people nearing retirement age, like those in Florida, or metro hubs with jobs such as Chicago and Atlanta are on their list.

Just what we need, a failed baby boomer buying a home in their mid 60s… not.

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Few in the mainstream media expected loan originations to drop to a 20-year low in 2014; in fact, most expected a surge in demand. Analysts fantasized about owner-occupants taking up the slack of retreating investors. The linchpin of their dreams was the idea that boomerang buyers would return in large numbers. That was never going to happen, no data justified the belief that it would. So here we are with demand flagging, so the boomerang-buyer-will-save-the-market meme is no longer operative.

Please, reporters, let the boomerang buyer idea die a quiet death. Just stop writing about it and let this silly idea disappear.

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