The financial crisis of 2008 wreaked havoc on homeowners across the US. Millions of Americans bailed on the housing market after the downturn when they simply couldn’t keep up with their mortgages.
But since then, the housing market has steadily improved. Consumers are enjoying a stronger labor market, increased wages, and a stronger economy. Americans are increasingly focusing on paying down their debt, and are more careful about over-leveraging to buy property or other large purchases.
Over the past eight years, those who were negatively impacted by the crisis have had time to improve their financial positions. More and more consumers are becoming eligible to obtain a sensible mortgage, and 2016 could be the year that sees hoards of buyers re-entering the market.
They’re called “boomerang buyers,” and are named so because of their sudden exodus from the market due to being delinquent on their mortgage loans, foreclosures, short sales, or other type of closure that pushed them out. And with more favorable economic conditions and improvement in personal finances, these same exiled homeowners could be re-entering the market very soon.
Experts are convinced that boomerang buyers will be a critical component to the real estate market in the near future. They’ve already started off with a bang, with 700,000 of the 7.3 million homeowners who experienced foreclosure or short sales already meeting mortgage criteria. That’s a huge jump compared to the 3 million Americans who were able to secure a mortgage between October 2013 and September 2014.
In fact, 2016 is anticipated to be the year if the boomerang buyer. Another estimated 1.5 million boomerang buyers are expected to make a grand re-emergence to the housing market within the next three years as they continually meet mortgage underwriting guidelines.
More specifically, here are the numbers of credit holders who will be eligible to meet mortgage criteria over the next few years:
And as these buyers continue to enter the market again, they’ll help drive the market.
In general, it takes about 7 years for a foreclosure to be wiped off a person’s credit report. Short sales tend to take about three or four years. These time periods have expired since the debacle in the months leading up to 2008’s recession, which means a huge influx of boomerang buyers is highly realistic.
According to TransUnion, out of all the mortgage holders who were deeply affected by the economic debacle nearly a decade ago, only 18 percent of those impacted actually made a full recovery by the end of 2014.
The remainder is set to re-enter the market some time this year as foreclosure terms and the duration of prior delinquencies expire shortly.
The Road to Healthier Credit
The housing downturn from 2008 and the months leading up to it also had a dire effect on credit ratings. Just 21 percent of Super Prime credit holders were significantly affected by the housing downturn, which are those who have a credit score of 780 or higher.
Compare that to the 36 percent of Prime credit holders who were equally affected – those with a credit score between 661 to 720.
While it may be a slow ride to full recovery, the trend towards improving credit has been established. Forty-five million Americans were slotted as Super Prime credit holders in 2006, with the number increasing to 53 million by the end of 2014.
The gain in strength wasn’t as rapid for the Prime credit holder group, which only grew to 30 million in 2014 from 29 million in 2006. But the increase is somewhat skewed, as the number of Prime Credit holders actually sank to 26 million in 2009, which means the gains are stronger than they may appear.
Boomerang Buyers Slowly Dipping Back Into Mortgages
During the years following the crisis, some programs were rolled out to help boomerang buyers get back on their feet and gather the finances to buy again. For example, the Federal Housing Administration (FHA) came up with a new program during the crisis that would give home buyers a chance to get back into the housing market in as little as a year.
But with only 2,162 mortgages made within the 12-month period up to September 2014 to buyers with a history of foreclosure, it seems that many were simply not yet ready.
It could be that those who didn’t take advantage of programs such as these still hadn’t financially recovered from the extended periods of unemployment, and simply didn’t have the savings needed to warrant a home purchase.
Of course, getting a loan isn’t the same of every boomerang buyer; it all comes down to the specifics of the person’s foreclosure, as well as their credit history since losing their home. It can be rather complex and littered with variation.
Real estate agents and financial experts believe it’s critical for boomerang buyers to talk to a mortgage lender to get a pre-approval letter prior to hitting the pavement in search of a new home. Certain loan underwriting standards have changed because of the previous housing crisis, and such changes could come into play when it comes to qualifying for a home loan.
But with the increased level of transparency in mortgage loans thanks to the recently introduced TILA/RESPA Integrated Disclosure rules, buyers are now able to make a much more informed decision when it comes to agreeing to the stipulations of their home loans.
And with consumers being more cautious and responsible when it comes to boosting their credit, paying off debt and making more sound purchases, a new beginning is on the horizon for the millions of boomerang buyers across the country.