Boomerang Buyers Back From Foreclosure

There has been a sense in the housing market that things are improving.  While incomes are not increasing wildly, people have been holding jobs and credit has been steadily improving.  Since the housing crash is now almost four years behind us here in Utah, it is interesting to see what time has done for folks who went through foreclosure.

In many people's minds, foreclosure was the end of the world.  It held a social stigma as well as carried a significant financial penalty for anyone who experienced it.  Making payments on your home was just something that you did as an act of decency and honor.  So, when the economy turned on it's head and forced many borrowers into the uncomfortable reality that they could no longer afford their homes, it sent a significant portion of the homeowners into the emotional and credit "penalty box".   

Well, time heals all wounds and foreclosure is not the end of the world.  So much time has passed now that borrowers who foreclosed can now qualify to buy homes again, and at today's low price and interest rate environment.  They could be termed "boomerang buyers". The Wall Street Journal has this interesting quote in a story today:

Using the three-year benchmark it takes to get an FHA-guaranteed loan, in this year's second quarter there were 729,000 households that were foreclosed upon during the bust that are now eligible to apply for an FHA mortgage, up from 285,000 in the second quarter of 2011, according to an analysis of foreclosure data by Moody's Analytics. The company projects that number will grow to 1.5 million by the first quarter of 2014.

An curious side note about this phenomena is the effect it has on the rental market.  These borrowers were all forced into rentals when they lost their homes.  As a landlord, some of my best tenants were former homeowners.  They took pride in their rental units and knew how to care for space.  If many of them return to homeownership, this will put downward pressure on the overall quality of the tenant pool and require more rigorous screening on the part of landlords.  I have already begun to see some of this in our rental market today.  The question that remains is how soon will these former homeowners return to the market to buy again.  Even though they have paid the credit penalty, the emotional penalty is one they will have to overcome at their own pace and in an unknown time frame.  Market psychology will play a big role here.     

The news is a mixed bag depending on your perspective.  It portends increasing house prices and property values which makes most property owners happy, yet it means a bit more work for them to preserve the condition and rent revenue as tenant quality weakens slightly.  Let's keep our eye on the market and see how this shift manifests itself.