Nick, & Cindy Davis

The American dream makes a comeback

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

The American dream makes a comeback

The American dream makes a comeback

 

“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.”

However in late February, five years once they were officially able to make another home purchase, they closed on a modest ranch house for under half the price of their former Orlando-area unit and merely 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.

You’ll find signs that a growing number of Americans who lost homes to foreclosure or a short sale while in the housing crisis are emerging from their post-crisis bunkers and purchasing again or intending to do so soon.

The trend could allow millions of so-called boomerang buyers to build wealth again through home-ownership. Additionally, it could provide support to a housing market that has sputtered lately. Existing home sales are down 6.6% to date this year in comparison with the year-ago period, in accordance with 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 adults largely have fueled the housing recovery so far. In March, first-time home buyers comprised 33% of all existing home sales, up from 30% last year, in keeping with NAR. But from the fourth quarter of 2017 to the fourth quarter of 2018, the home-ownership rate jumped from 58.9% to 61.1% for 35 to 44-year-olds, the most significant 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 brought on by lenders who doled out subprime mortgages to Americans who couldn’t qualify for conventional loans. The majority of the mortgages required low interest-only payments initially that ballooned after a few years. The model worked provided that 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 go into default on their mortgage payments.

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

A short seller generally must wait three years to purchase 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 acquired a new mortgage, based on 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 a number of those affected who wished to become homeowners again have already 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 much larger force in the housing market than prime-age boomerang buyers in the future. There are approximately 31.7 million 24- to 38-year-old renters in the U.S., in accordance with CoreLogic.

But Moodys’ Donaldson notes that the typical pay of middle-aged Americans is 14% greater than the U.S. average, making them particularly good candidates to purchase homes. Individuals who lost houses were financially and psychologically scarred, he says, and many might 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 however get cold feet and withdraw before reentering the market months later and eventually buying, says Jessica Reinhardt, a broker at RE/MAX Alliance.

A NerdWallet survey, conducted for USA TODAY in January, discovered that 6% of Americans who lost a home as a result of a financial event the past decade intend to purchase one this year. However a whopping 39% plan 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 possibly 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 began thinking about buying again last November. Besides planning 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 a maximum of $250,000, rejecting a number 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. Before, “The mortgage company made it so easy,” she says.

The couple, who used most of their savings to purchase their previous house, “qualified for even 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, providing them with 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 compared to 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, based on 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.

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 is a godsend for Art Fernandez, of Davie, Florida. In 2007, he and his wife Leanette leveraged an interest-only mortgage to purchase 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 prior to selling their existing house.

However the housing market appeared to crash the week they closed, Fernandez says, leaving them owing more on both homes than they were worth. Soon, Leanette was forced 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.

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. Leanette became a travel and lifestyle blogger.

After they decided to purchase 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 would like 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 chose to purchase 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.”

Ready to find your new home here in the Tampa Bay and Surrounding Areas? Nick, Cindy & Nicholas Davis with RE/MAX Premier Group are here to assist you with all your Real Estate Needs. We are always available at 813-300-7116 to answer your questions or you can simply click here and we will be in touch with you shortly.

Need to get started with your mortgage process? You can contact Kyle Edwards with Iberia Bank at 813-495-5131, or simply click here to start your online application.

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