Boomerang Buyers in 2015: Realtor’s Dream or Reality?

05/06/2015 02:00 PM (CST)

dream houseOnly about one in four former homeowners who lost property during the housing crash will soon become buyers again as tight credit keeps many out of the U.S. real estate market, according to a study by National Association of Realtors.

Of the 9.3 million owners who went through foreclosure or were forced to sell at a loss, about 950,000 already have bought again and 1.5 million more are likely to make a purchase in the next five years.

Is this a significant boost to the buyers’ market? Depends on who you ask. NAR headline, announcing the results of the study, was optimistic: “NAR Study: Return Buyers Expected to Boost Housing Demand in Coming Years”. Bloomberg was not optimistic at all. Their headline, referencing to the same NAR study, read as follows: “Few Who Lost Homes in U.S. Will Make Purchases Again Soon.”

So who is right? Lawrence Yun, chief economist at NAR, said in the telephone interview for Bloomberg: “They won’t be a significant factor to the housing market going forward. The majority of the 9.3 million won’t be coming back.”

He sounded more optimistic, yet still cautions, in the interview he gave to the NAR’s own website: “The extended time needed to repair credit scores or save for a downpayment, combined with other overlapping post-distress factors on credit quality such as missed auto loan or credit card payments, will limit the ability for many to buy in the current credit environment.”

If we look at the numbers, less optimistic view is probably a correct one. The U.S. homeownership rate fell to 64 percent at the end of last year, a two-decade low and down from a high of 69.2 percent in 2004, according to Census Bureau data. The ownership rate will drop to 63.5 percent by 2016 and plateau for years, according to report last week by Goldman Sachs Group Inc. analysts led by Hui Shan.

The 9.3 million homeowners the Realtors group studied gave up their homes through more than 5 million foreclosures and 4 million other distressed transactions since early 2007, including short sales and deeds in lieu of foreclosure.

The estimate that 950,000 buyers have returned to date is based on surveys showing they accounted for about 7 percent of existing-home sales since 2012, when those who lost property to foreclosure became eligible again for Federal Housing Administration financing.

California, Florida and Arizona, which had the highest numbers of foreclosures early in the housing crisis, will see the biggest share of return buyers over the next five years. Many who’ve repaired their credit and hope to purchase again will face challenges in areas where home prices have recovered and affordability is out of reach, such as coastal California, he said.

So while boomerang buyers are not exactly a myth, they will be more visible in certain areas, and will have little to no impact in others. Overall, a return of a critical mass of eligible buyers with perfect credit and lots of cash is more of a Realtor’s dream than reality.