Economists predict a positive year for the US real estate sector in 2019. The recent dovishness from the Fed has exerted a downward pressure on the mortgage rates since early 2019. The slower home price appreciation, along with a sustained wage gain, has increased affordability for buyers across different states, for the first time in the last 2 years, resulting in a cooling yet stabilized market.
Millennials constitute a significant bulk of homebuyers today, with a majority of this population having reached the age of 29-30 years, the prime age for first-time home buyers. Indeed, they have fueled the housing sector , with a Bloomberg report stating that 33% of home sales were contributed by first-time young buyers in March 2019, up from 32% the prior month.
But, another group of buyers are also expected to make a significant contribution to the country’s real estate sector in 2019 and beyond – these are the “boomerang buyers.”
Boomerang Buyers are Poised to Re-enter Real Estate
Nearly 10 million homeowners lost their homes to foreclosure or “short sales” between 2006 and 2014, as a direct consequence of the sub-prime crisis, according to Marketplace. Nearly a third of this population has been saving up for the down payment of a home, as well as the expiration of the waiting period to qualify for mortgage again.
Typically, after a foreclosure, home buyers have to wait 7 years to qualify once more for a mortgage loan approved by Freddie Mac or Fannie Mae. Now, after more than a decade of waiting, these homebuyers, mostly aged above 44 years, are back in the housing market.
Image Courtesy: ‘Boomerang’ Buyers Flying Back [INFOGRAPHIC]; Keeping Current Matters
Between Q4 2017 and Q4 2018, homeownership rate in the age group of 45-54 years increased from 69.5% to 70.1%, the largest increase recorded for any age group, according to an article on USA Today. This increase is attributed to the rise in number of boomerang buyers, those who lost it all in the 2008 financial crisis and over the years have significantly improved their credit scores.
In fact, according to a study by Lending Tree, 74.4% of the Americans who filed for bankruptcy in 2009 had improved their credit scores back to a 640+ FICO® within 5 years. There are about 2.8 million people who significantly improved their credit scores between January 2016 and November 2018. Over 11.5% of them have now managed to get new mortgages, according to a study by Experian.
Boomerang buyers are expected to fuel the US real estate industry in the next few quarters. But, it is to be noted that these are not the same buyers as they were before.
Agents Need to Know Their Mindset
There are significant psychological aspects that need to be addressed when targeting a boomerang buyer. They lost their homes, and probably their jobs too, in the 2008 recession. So, when they re-enter the housing market now, they will have a conservative mindset, unlike the millennial homebuyers.
They will be up for low-payment loans. According to CoreLogic, if we compare the buying preferences of boomerang buyers with that of non-distressed repeat buyers, the former will have a greater tendency to finance their purchase through FHA loans than the latter.
Also, not everyone will be brave enough to come back to the “homeowner” category. They have been happily renting for about a decade now and might prefer to continue to do so, unless they find a really good deal that they can’t refuse. The new wave of lowered home prices could be a trigger for many of them.
Will they re-ignite the US real-estate market? Only time will tell.