Less Than Half Return Even 16 Years After Foreclosure
Next year marks seven years since the foreclosure crisis peaked in 2010, during which enough time would have passed for the black mark of foreclosure to be erased from millions of consumer credit reports. In total, 1.9 million homeowners who faced owner-occupied foreclosures between the start of the housing crisis in 2007 through 2010 will have met the seven-year period after which the Fair Credit Reporting Act requires derogatory information to be removed. By the end of 2020, another 1.2 million homeowners who lost their homes to foreclosure between 2011 and 2013 will become eligible. While millions of former homeowners reentering the buying market would have a significant impact on home sales, historical data shows a more gradual return rate for these so-called boomerang buyers, with less than half returning to homeownership even 16 years after the foreclosures were completed. Historical return rates show recent incremental volumes of 150,000 boomerang buyers returning per year, or 12,500 per month. Of the 4.4 million owner-occupied foreclosures completed since 2000, 1 million foreclosed homeowners have returned.1
CoreLogic property tax and sale transaction data was linked to unique consumers from which a random sample of one million individuals who underwent owner-occupied foreclosures between 2000 and 2013 were tracked over time to determine how many returned as boomerang buyers. Figure 1 shows that the cumulative return rates of boomerang buyers vary by foreclosure vintage. A decade after their foreclosures, 38.5 percent of homeowners who lost their homes in 2000 returned as buyers. In comparison, only 26.3 percent of 2006 foreclosed homeowners returned at their ten-year mark, and the 2007 vintage of foreclosed homeowners is expected to have even lower returns than 2006. The vintage curves from 2008 through 2011 saw marked improvements in the shares of boomerang buyers returning to market, while the more recent vintage curves in 2012 and 2013 appear to be declining again, although it still may be too early to tell.
Comparisons of the buying preferences between boomerang buyers and traditional non-distressed, owner-occupied repeat buyers show that boomerang buyers are, on average, four times more likely to finance with FHA loans than the latter (Figure 2). FHA loans are, as a general rule, easier to obtain than conventional loans for cash-strapped borrowers with past foreclosures in their credit history. FHA guidelines allow one to apply for a loan three years after the foreclosure sale date with a minimum 3.5 percent down and a credit score of at least 580, while Fannie Mae conventional guidelines allow one to apply for a loan seven years after the foreclosure sale date with a minimum 10 percent down and a credit score of at least 620.
States that were hit hardest by the foreclosure crisis had the highest shares of boomerang buyers return based on 2007 through 2013 total foreclosures (Figure 3). The three highest boomerang buyer states – Arizona, Nevada and Michigan – each saw 32 percent of foreclosed homeowners purchase again, which is 10 percentage points higher than the national boomerang buyer share. California and Florida, states with the highest total foreclosures, had boomerang buyer shares of 24.8 percent and 20.3 percent, respectively.2 A total of 8 million single-family homes were foreclosed on between 2000 and 2013. This study was focused on owner-occupied foreclosures, excluding investment properties, second homes and unknown occupancy homes.
2 These shares include buyers who purchased subsequent homes outside of their original state. However, CoreLogic data shows that 60-70 percent of boomerang buyers repurchase within their original metro area.
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