Chances are if you asked the estimated 5.3 million people who lost their homes during the real estate crisis if they thought they would ever be able to own a home again, their answer would probably be no. Seven years later, however, with their credit rebuilt or on the mend, some of these same former homeowners are re-entering the market.
The comeback being staged by this category, also known as the boomerang buyer, is being driven by rising rents and a desire to own a home again now that the economy seems to be stabilizing. Experts see this growing trend happening in various markets across the country, with the most popular being Riverside-San Bernardino, California (4.1%), Los Angeles, California (3.7%) and Phoenix, Arizona (3.6%). Since California is one of the biggest indicators and predictors of what will happen in the housing market, this is good news for the rest of the U.S.
Research conducted by Sean Fergus of John Burns Real Estate Consulting, concluded that about 2.8 million boomerang buyers will become new homeowners by 2021. The remaining 2.5 million, who lost their homes due to foreclosure or short sales, have either already repurchased a home, or will be forced to continue rent for at least seven years.
Challenges Faced by the Boomerang Market
Even though the return of the boomerang buyer is a positive sign for the real estate market, there are still challenges that lie ahead for these buyers. These challenges could be the reason why some former homeowners will be forced to stay in the rental market.
However, most experts predict that the number of short sales or foreclosed renters will continue to decline over the next seven years, as more and more former owners are able to buy once again.
Two of the major challenges that boomerang buyers will face are new limits to FHA loans, the most common loan for these types of buyers, and an increase in down payment requirements. New limits have been placed on FHA loans, which will definitely have an impact in markets where prices are still pretty high. In fact, in some markets, like San Diego, CA and Orlando, FL, there has been a decrease of between $78,900-$151,250 in loan limits since 2013. This will make buying a home priced above the limit difficult.
These limits are predicted to impact new home purchases more than it will resale purchases. This does give some boomerang buyers a chance at homeownership, but with down payment requirements as high as 20%, challenges still linger. However, there are still opportunities available to purchase home with a lower down payment requirement.
Other challenges facing these return buyers are the wait times to qualify for a loan. Wait times can vary between two to seven years. For example, If a homeowner under went a short sale before they were eligible for another loan, their wait time is only two years.
Those seeking a FHA loan only have to wait three years after undergoing a foreclosure or short sale. The wait time may be shortened if they lost their home after a pay cut. For homeowners seeking a more traditional loan, they may have to wait seven years after going through their foreclosure.
Even with all these challenges, all signs seems to indicate that boomerang buyers are making a strong comeback, and will continue to do so in the future.