Are you ready for The Boomerang Buyer?  That is the latest wrinkle in the seemingly endless foreclosure saga and there are apparently a lot of them who are now potentially able to affect the trajectory of housing. 

Boomerang buyers are former homeowners who lost their homes over the last few years, either through short sale or foreclosure.  RealtyTrac, in a report released on Tuesday, say there are 7.3 million of them and the first wave has passed the seven year mark after exiting homeownership.  This is, the company says, a conservative estimate of the time needed to repair credit and qualify to buy another home. 

Boomerang buyers have been around for a while of course.  The term was apparently coined by the Wall Street Journal in 2012.  In October of that year they reported that home builders had been reaching out to those buyers, with one offering materials informing customers of mortgage eligibility rules covering their situation. 

Those eligibility rules vary, but it is possible to qualify for Fannie Mae, Freddie Mac, VA, or FHA loans within two to four years of foreclosure with time determined by the amount of downpayment in some cases.  However it takes a lot longer for all of the bad news that usually accompanies a foreclosure to disappear off of credit reports and for credit scores to rise enough to support a loan application.

According to RealtyTrac, the first wave of technically rebounding buyers is relatively small, about 550,000 households, representing those who exited homeownership in 2008.  The group climbs to just over 1 million in 2016 and remains over that level through 2019, peaking at 1.3 million in 2018 and finally dwindling back under a half million in 2022.   

So far boomerang buyers are not stampeding back into homeownership.  Last October Realtor.com’s on-line magazine reported that only about 2.1 percent of all foreclosed buyers (they were using a total number of 5.43 million and a benchmark date of 2007) had purchased a primary home by the end of 2013, about 114,100.  Their data, based on an Experian study, said buyers who had completed one of 809,000 short sales identified, were buying at a slightly higher rate, 5.5 percent, with about 44,300 repurchases by the end of 2013.

The article reported however that sales appeared to be increasing.  Anecdotal information especially coming from former foreclosure hotspots indicated that lenders were seeing substantial numbers of these buyers and many were successfully closing loans.

And sheer numbers means those areas with high levels of foreclosures are those that will see the greatest impact from the boomerang should it materialize.  Not only are there a lot of potential households, but home prices have not recovered in a lot of the areas, making reentry into homeownership feasible for many families recovering from the downturn.

RealtyTrac says the market with the most potential boomerang buyers is not surprisingly Phoenix-Mesa-Scottsdale.  Arizona had the number one foreclosure rate in the country for about five years and still ranks high among the states.  There are an estimated 350,000 households in that MSA who may be eligible to rebuy over the next eight years.  Potentially these buyers could purchase about 19.4 percent of the MSA’s housing stock over the next seven years.  Other markets with high numbers are Miami-Fort Lauderdale, Detroit, and Chicago, all of which have over 300,000 potential buyers.

The market with the highest rate of these buyers as a percentage of total housing units is, also not surprisingly, Las Vegas at 26.3 percent, followed by Merced and Stockton, California with 23.03 and 21.4 percent respectively.

RealtyTrac says that in addition to having a high percentage of housing units lost to foreclosure and current prices that are still affordable to median income earners, markets likely to benefit most from boomerang buyers are those which have stable or growing populations of Generation X and Baby Boomers.  There were 22 markets with populations over 250,000 where RealtyTrac says this “trifecta” is in place.  They are led by Las Vegas, Cape Coral-Ft. Meyers, Port St. Lucie, Florida, Orlando, and Greeley, Colorado.  

Of course the RealtyTrac projections do not take into account those foreclosed homeowners who have not recovered from the financial difficulties that caused them to lose their homes in the first place.  Continued bad credit or even the failure to rebuild good credit will impact the ability of many to qualify for a new mortgage as will lingering debt as well as the loss of equity from the previous home or the inability to save money for a downpayment.  There is also the motivation factor.  After undergoing a foreclosure and the resulting dislocation and stress there are bound to be a lot of people who will simply say “never again” to homeownership.