A recent change in federal housing guidelines could set the stage for up to 2.5 million formerly foreclosed homeowners and short salers to re-enter the housing market sooner rather than later.
New guidelines introduced in August by the U.S. Department of Housing and Urban Development (HUD) now allow people with a foreclosure or short sale on their credit records to qualify for a new mortgage as soon as 12 months after the event, as opposed to the minimum of three years under the old Federal Housing Administration rules. RealtyTrac data estimates the change affects nearly 2.5 million people – known as boomerang buyers for their u-turn back into the housing market after being away from it for a while.
Already more than 4.3 million potential boomerang buyers who lost homes during and after the housing bubble burst in September 2007 may have qualified to buy with an FHA mortgage. In July, a national real estate analyst estimated that boomerang buyers could account for nearly one in five home sales in the Valley this year – double the projected U.S. rate. Phoenix has been identified as one of the top markets for boomerang buyers in the nation.
What’s driving these buyers back into the market? For the most part, it’s rising rents and improvements in their job and financial status, thanks to a slowly improving economy. Some buyers also are hoping to get out ahead of rising home prices and interest rates. Still, barriers to entry, including stricter lending requirements and a latent reluctance to own a home again, may keep some of these potential buyers out of the market, experts say.
Home builders and other industry-watchers are keeping a keen eye on this market segment, which, according to a recent Forbes article, will wield considerable influence. “The ability and willingness of boomerang buyers to re-enter the market over the next year will be a key bellwether of the long-term health and direction of the U.S. housing market going forward for the next decade, and possibly beyond,” writes Forbes contributor Darin Blomquist. “The more who re-enter the market sooner rather than later – possibly spurred on by this new FHA rule enabling them to do so – the more likely we’ll see a return to a typical home ownership-dominated society and the more quickly institutional investors will pull out of the single-family rental market and move on to other ways of making money.”
(Editor’s Note: Andy Warren is President of Maracay Homes, the Arizona subsidiary of the Weyerhaeuser Real Estate Company. He serves on the Board of Directors for the Home Builders Association of Central Arizona and Greater Phoenix Leadership; as well as the Board of Directors and as an Executive Committee member with the Greater Phoenix Economic Council. He is also an active member of the Urban Land Institute.)