Study: ‘Boomerang Buyers’ unlikely to return quickly

Article courtesy of Wall Street Journal via The Rundown

The length of the foreclosure crisis-it’s been going on for nearly six years now-is raising an interesting question: How many of those borrowers who lost their homes in the first wave of foreclosures will become homeowners in the coming years?

It’s not going to happen quickly, according to a paper from researchers at the Federal Reserve Bank of San Francisco. In fact, the paper says that former homeowners who defaulted on their mortgage during the recent housing crisis are likely to return to homeownership at a slower pace than previous cohorts of defaulters.

Because millions of Americans have defaulted on their mortgages over the past five years, these “boomerang buyers” could represent an important slice of housing demand in the coming years.

The paper from William Hedberg, a research associate, and John Krainer, a senior economist, finds that borrowers whose mortgages are paid off for reasons other than default return to housing markets about 2½ times faster than those who default.

Overall, the paper finds that about 10% of borrowers who have experienced a serious delinquency regain access to the mortgage market within 10 years of their default.

But because credit standards are much tighter today than during previous cycles, former defaulters could be much less likely to obtain credit. So far, borrowers who defaulted in 2008 have returned to the housing market at a “significantly slower” rate than those who defaulted in 2001 and 2003, when subprime credit was flowing easily and when housing demand was much stronger than it is today.

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