Boomerang buyers: More people who lost homes during housing crisis are buying again

After Teresa and Mark Taunton short sold their $535,000 four-bedroom dream home in Celebration, Florida, at the end of the real estate meltdown in 2011, buying another house was the last thing on their minds.

“It makes you feel you could somehow end up in the same position,” says Teresa, 57, describing the anxiety the couple experienced after selling their house for less than what they owed the bank. “We were just so leery of everything.”

But in late February, five years after they were officially allowed to make another home purchase, they closed on a modest ranch house for less than half the price of their former Orlando-area unit and just minutes away.

“We were really tired of renting,” Teresa says. Of their new house, she adds, “It’s comfortable. It’s home.”

With rent, “You’re looking at (shelling out) $20,000 to $30,000 a year, and you have nothing in return,” Mark adds.

There are signs that a growing number of Americans who lost homes to foreclosure or a short sale during the housing crisis are emerging from their post-crisis bunkers and buying again or planning to do so in the near future.

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The trend could allow millions of so-called boomerang buyers to build wealth again through homeownership. It also could provide support to a housing market that has sputtered lately. Existing home sales are down 6.6% so far this year compared with the year-ago period, according to the National Association of Realtors (NAR).

“I think the next phase of the housing recovery will be partly driven by people in the prime age group” of 35 to 64 that have been hesitant to buy again after losing homes in the crisis, says Kwame Donaldson, an economist with Moody’s Analytics.

Young people largely have fueled the housing recovery so far. In March, first-time home buyers made up 33% of all existing home sales, up from 30% a year earlier, according to NAR. But from the fourth quarter of 2017 to the fourth quarter of 2018, the homeownership rate jumped from 58.9% to 61.1% for 35 to 44-year-olds, the largest increase on record for any age group, and from 69.5% to 70.1% for 45 to 54-year-olds, Census Bureau figures show.

Donaldson says he believes the leap for 35- to 44-year-olds was largely spurred by boomerang buyers who were 27 to 36 during the depths of the crisis.

Housing crisis hit less qualified

The housing bust was caused by lenders who doled out subprime mortgages to Americans who couldn’t qualify for conventional loans. Many of the mortgages required low interest-only payments initially that ballooned after a few years. The model worked as long as home prices kept soaring, allowing homeowners to refinance. It unraveled when prices plunged and the Great Recession caused millions of people to lose their jobs and fall behind on their mortgage payments.

From 2006 to 2014, there were 7.3 million housing foreclosures and 1.9 million short sales, according to CoreLogic, a housing research firm. After a foreclosure, a prospective buyer must typically wait seven years to qualify for a mortgage guaranteed by Fannie Mae or Freddie Mac. The wait can be three years in certain circumstances, or for a Federal Housing Administration loan, but people who wait seven years generally benefit from higher credit scores and lower interest rates.

A short seller generally must wait three years to buy again.

Of 2.8 million former homeowners whose foreclosures, short sales or bankruptcies dropped off their credit reports from January 2016 to November 2018, 11.5% have obtained a new mortgage, according to a study by credit rating agency Experian for USA Today.

Fifty-three percent of the remaining 2.5 million had prime or super-prime credit scores in November, notes Experian Vice President Michelle Raneri. “That’s 1.3 million people who have really good credit,” she says. “Maybe they don’t realize they would qualify now.”

Some economists say many of those affected who wanted to become homeowners again already have done so. “I’m less convinced this is going to move the market,” says Ralph McLaughlin, deputy chief economist of CoreLogic.

Michael Fratantoni, chief economist of the Mortgage Bankers Association, says young people will be a far greater force in the housing market than prime-age boomerang buyers the next few years. There are about 31.7 million 24- to 38-year-old renters in the U.S., according to CoreLogic.

But Moodys' Donaldson notes that the typical pay of middle-aged Americans is 14% higher than the U.S. average, making them particularly good candidates to buy homes. Those who lost houses were financially and psychologically scarred, he says, and many could take longer than three- or seven-year waiting periods before feeling comfortable enough to make a purchase.

In the Denver area, some boomerang buyers tour homes but then get cold feet and pull back before reentering the market months later and finally buying, says Jessica Reinhardt, a broker at RE/MAX Alliance.

A NerdWallet survey, conducted for USA TODAY in January, found that 6% of Americans who lost a home due to a financial event the past decade plan to buy one this year. But a whopping 39% intend to buy over the next three years and 58% say they’ll purchase within five years. Nearly one-third said they're afraid to own a home again.

Losing the 'American dream'

The Tauntons, of Celebration, could have bought another house in 2014 when the three-year waiting period after their short sale ended. But, “the memory was still sore,” Mark says. “You’re still in the middle of what you lost.”

They lost the house they bought in 2005 in which they raised the five children of their blended family and that symbolized their attainment of “the American dream,” as Mark puts it. They had their own pool and the Disney-owned community sported a movie theater and spa, among other amenities.

They kept current on their mortgage even after Mark lost his job as manager of an exclusive men’s designer clothing store in the depths of the recession in 2008. But when their monthly payment jumped from $2,300 to $3,500 in 2010, they were on the verge of falling behind. Their lender advised them to stop making payments so they could get a loan modification, but it never came.

“We did everything right,” Mark says, noting they had never missed a payment. “It was traumatic.”

While they rented four apartments and homes, they squirreled money away and started thinking about buying again last November. Besides wanting to amass a retirement nest egg, they grew weary of renting because “you didn’t get to know your neighbors,” Teresa says.

This time, they resolved to spend no more than $250,000, rejecting several of the more lavish houses they visited. “You never want to go through that again,” says Mark, who is now a high school teacher.

Teresa, an accountant, asked lots of questions and took meticulous notes, and the couple provided extensive documentation. Last time, “The mortgage company made it so easy,” she says.

The couple, who used most of their savings to buy their previous house, "qualified for much more than the home" they purchased this time, says their Redfin agent, Mike Moore.

They made a down payment of 5% on the $247,000 house, giving them a monthly payment of $1,640. While they worry about getting hurt by another crash, “I feel a whole lot better about a $240,000 house than a $535,000 house,” Mark says. “I feel like I can still control it.”

Economy, wage growth aid buyers

There are concerns for boomerang buyers. Nationally, home prices have climbed 53% since their 2012 bottom and are now 11% above their 2006 peak, according to the S&P CoreLogic Case-Shiller index. That raises worries about another potential bubble and could keep already-wary former homeowners from making a purchase. But credit standards are much tighter now, “so there are fewer risky loans out there,” says Skylar Olsen, director of economic research for real estate site Zillow. “The national market is not headed towards a bubble popping,” she says.

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In fact, home price increases have moderated since last year and mortgage rates have fallen even as wage growth has accelerated, creating a positive backdrop for boomerang and other buyers, Fratantoni says.

The economy’s steady recovery the past nine years has been a godsend for Art Fernandez, of Davie, Florida. In 2007, he and his wife Leanette leveraged an interest-only mortgage to buy a 10,000-square-foot house around the corner from their more modest home, seeking both their dream house and a sure-fire investment in the go-go years. They bought even before selling their existing house.

But the housing market seemed to crash the week they closed, Fernandez says, leaving them owing more on both homes than they were worth. Soon, Lynette had to leave her job as a mortgage broker and Art, a retail theft prevention manager, was laid off. They lost the first house through foreclosure and the second in a short sale. “It was very, very difficult,” Fernandez, 42, says.

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But while they rented for three years, he got another theft-prevention job, as well as a part-time gig as a real estate broker. Leannette became a travel and lifestyle blogger.

When they decided to buy a 2,200-square-foot house in 2017 for $355,000, “It was like we had three full-time jobs,” Fernandez says. “We were confident and ready to find our 'forever home.'"

In some areas hit hardest by the housing crisis, boomerang purchases are picking up, brokers say. In Las Vegas, Thomas Blanchard, managing broker of Orange Realty Group, estimates that 15% to 20% of sales handled by his firm are to boomerang buyers, up from 1% to 2% a few years ago. In the Miami area, boomerang buyers make up four in 10 purchases, estimates Sonia “Gaby” Martinez, broker and owner of Xtreme International Realty. Sharply rising rents in Las Vegas and Miami are prodding more ex-homeowners to buy again, the brokers say.

Some want to do so before climbing prices make it impossible.

Kimberly Velasquez, 43, of Parker, Colorado, lost her four-bedroom, $320,000 house to foreclosure in 2011. After renting and going through a divorce, she decided to buy a $380,000 townhouse last August as soon as the foreclosure came off her credit report. Denver-area home prices have more than doubled since 2011.

“I decided I needed to do it now," she says, "or it would be to the point where I’d be priced out of ever being able to buy a home.”

This article originally appeared on USA TODAY: Boomerang buyers: More people who lost homes during housing crisis are buying again