Apr302015
NAr lowers projections for boomerang buyers
realtors accept reality that boomerang buyers will not return in large numbers.
Economic predictions follow a repeating pattern. At first economists pander to everyone’s optimism bias and proffer predictions based on recent trends and dominated by wishful thinking. Later, when reality of data forces them to abandon their fantasies, economists downwardly revise their predictions, sometimes over and over again. Finally, once they’ve lowered their projections enough, the data finally matches their lowered expectations, and they claim prescience for their brilliant insights.
When the boomerang buyer meme first appeared, projections of “experts” (usually local real estate agents or mortgage brokers) confirmed that 80% or more of former owners would buy again. “It’s more than incremental business, that’s for sure,” adds Dan Klinger, president of K. Hovnanian American Mortgage.
By 2012 more reputable, but equally over-optimistic, analysts chimed in. John Burns, a reputable OC real estate analyst predicted that in 2013, “Foreclosed homeowners, who are currently renting homes, will come back in droves.” He predicted that 10% of home purchases in 2013 would be boomerang buyers, and this number would increase to 500,000 per year from 2013 to 2016.
Undaunted by the fact these buyers didn’t materialize, in 2014, he predicted 17.5% of home purchases would be boomerang buyers, and those numbers would also increase in 2015 and 2016. A post on his blog estimated nearly 50% of former owners would buy again, despite a federal reserve study that predicted only 10% would ever buy again.
I recently offered stunning proof boomerang homebuyers do not exist: Lenders originated just 2,162 FHA mortgages in the year through September 2014 for buyers with a previous foreclosure, according to the FHA. That was up slightly from 1,808 in the same period in 2013 — and this despite a relaxation of FHA qualifying rules that was supposed to add 2.5 million borrowers to the buyer pool. That’s a bit shy of the 500,000 mark, wouldn’t you say?
Well, even the perpetually overly optimistic (delusional) National Association of realtors is lowering their expectations.
Many Who Lost Homes to Foreclosure in Last Decade Won’t Return — NAr
Fewer than one-third of families who lost homes are likely to become owners again, Realtor group finds
By Laura Kusisto, April 20, 2015 12:50 p.m. ET
Less than one-third of families who lost their homes to foreclosure or other distress events in the past decade are likely to become homeowners again, according to an analysis by the National Association of realtors.
Ten percent is certainly less than one-third, so the NAr is on the right track here, but they still need to lower their implied expectations to match reality.
More than 9.3 million homeowners went through a foreclosure, surrendered their home to a lender or sold their home via a distress sale between 2006 and 2014. Of those, about 2.5 million either have already jumped back into the housing market or will do so within the next eight years because they have the financial ability to purchase and are eligible for a mortgage, according to the Realtor group.
Of the 2.5 million referenced above, less than 1% own today, so the remaining 99% is conjecture and wishful thinking.
Most of the rest won’t be eligible to borrow or won’t have the desire to buy again, the analysis found.
Federal reserve analysts came to this conclusion years ago, but everyone chose to ignore reality in favor of their more emotionally satisfying dream.
Real-estate agents and economists have been anxious about the return of formerly foreclosed upon homeowners,
Anxiety is a classic side effect of pinning hopes on fantasy. It requires energy to ignore reality.
whose re-emergence could boost the housing market and the broader economy. Borrowers who went through a foreclosure or other negative event are ineligible to obtain a government-backed mortgage for up to seven years afterward. For families who lost their home in the early years of the crisis, the penalty phases are ending, creating optimism about a large new pool of potential homeowners.
These penalty phases were rolled back years ago, and boomerang buyers didn’t materialize. The analysis below is from 2012, and that was before the FHA shortened the waiting period by two years in 2013.
But Lawrence Yun, chief economist at the Realtor group, cautions that the pool may not be as large as some are expecting.
Mark this day as an epic event in the history of real estate market analysis: I agree with Lawrence Yun.
Many won’t return because they are unlikely to improve their credit or income enough to qualify for a mortgage. Even those who have decent credit will be held back by “overly stringent” lending standards. He estimates that 490,000 buyers who are or will be eligible for mortgages backed by the Federal Housing Administration and similar programs won’t qualify unless there is a loosening of stricter-than-normal requirements.
Others, he said, won’t return due to lack of desire to own a home after being burned during the crash.
A rare moment of truth from the NAr. I’m speechless.
Still, the 2.5 million buyers that the Realtors expect to return will have a significant impact on housing, especially in California, Florida and Arizona, the report said.
The spin and bullshit needed to follow that gaffe.
Nicole Brule-Fisher, president of the Tucson Association of Realtors, said that agents there are already seeing a number of buyers return after foreclosure. And unlike during the boom years, buyers today are more cautious. “They’re looking at it as what they’re going to be living in as a home, as opposed to that old mindset…they’re going to flip it in a few years because they’re going to double the value,” she said.
Brokers said they have been counseling their clients to work on their credit scores, rather than becoming defeated and assuming they can never own again. … “They’ve lost their place but that doesn’t mean they have to be a renter for the rest of their lives.”
God forbid they have to spend the rest of their lives as lowly renters. The shame would be unbearable… not.
[dfads params=’groups=3&limit=1&orderby=random’]
[dfads params=’groups=23&limit=1&orderby=random’]
[listing mls=”OC15083694″]
Millennials and Boomerang Are Not Buying
This Millennial Still Won’t Buy a House, and Homeownership Rates are Falling
Homeownership in the first quarter of the year fell to its lowest level since 1989, to 63.8 percent, the Census Bureau reported.
Sara Stevens, she’s 28, and in many ways she epitomizes her generation’s take on ownership. Her dad, David Stevens, was one of the nation’s top housing regulators in 2008, giving Sara a front-row seat to the pain and drama of the housing meltdown. She’s well educated, has a good job in public policy and is planning her wedding. But after months of thinking about it, she and her fiance signed a lease on a new apartment in February instead of making a down payment on a house.
“Our lives have changed and are changing so rapidly,” Sara said. “Beyond the simple truth that we don’t have time to buy, the reality is that we haven’t decided what the next few years hold for us.”
Her dad, who now runs the Mortgage Bankers Association, is eager to see his daughter settled and is a little worried she’s taking too long to get into a market where prices keep rising. But Sara’s reasoning is thoughtful and well-informed.
“Buying is a long-term commitment. We want to do it when we know we can not only afford it, but when it will be something we can stay in long enough to build equity and a life in,” she said. “That’s just not the case for us quite yet — but someday.”
At the beginning of this post I described the process of how economists make and revise their projections. Apparently, reality isn’t causing all economists to revise their projections downward… yet.
‘Paltry’ GDP Growth in First Q1 Estimate Does Not Derail Economists’ Outlook
Many reports of the nation’s economic progress for the first quarter have been soft, and the advance estimate of real gross domestic product (GDP) growth for Q1 released Wednesday by the Bureau of Economic Analysis (BEA) is no exception.
The BEA reported in the first estimate for Q1 that real GDP grew at an annualized rate of just 0.2 percent during the quarter, only a fraction of the 2.8 percent that has been projected for the year. The real GDP grew at a rate of 2.2 percent in the fourth quarter of 2014 and 2.4 percent for the entire year.
Despite the report of economic growth nearly grinding to a halt in the first Q1 estimate, however, economists’ outlook for growth for the remainder of the year, particularly in relation to housing, remained unchanged.
“As in recent years, the first quarter, once again, defied expectations and optimism for the year ahead. The advance estimate on GDP showed a paltry 0.2 percent annualized growth rate,” Freddie Mac deputy chief economist Len Kiefer said. “The slowdown in growth was primarily driven by declining exports, with next exports shaving nearly 1.3 percentage points off of first quarter growth. And despite strong corporate balance sheets and low interest rates, nonresidential fixed investment as a share of total output remains well below historical averages.”
In spite of the recent reports of slow economic growth in Q1, Fannie Mae has maintained its forecast for GDP growth of 2.8 percent this year and its position that the economy will “drag housing upward.” Fannie Mae chief economist and SVP Doug Duncan pointed out that the actuals as far as housing–existing home sales, new home sales, and prices–were either at or very close to their predicted levels during Q1, and mortgage purchase applications have been way up for the last couple of months.
“Today’s GDP announcement doesn’t change our view on housing,” Duncan said. “Housing is right where we expected it to be.”
While Duncan said the rate of real GDP growth announced Wednesday was “a lot weaker than anticipated,” he said that “we don’t think that it’s going to be sustained. There are two more revisions.”
Likewise, Kiefer was undeterred by Wednesday’s GDP report in his forecast of economic growth for the remainder of the year.
“Looking ahead to the rest of the year, we maintain our positive outlook and expect a pick-up in growth,” Kiefer said. “Even with a slow first quarter, economic growth should be solid enough for robust job gains and improving housing markets.”
Fed Decides Against Interest Rate Hike
Despite rumblings that the Federal Open Market Committee (FOMC) would increase interest rates at its monetary policy meeting today, the committee instead reaffirmed its current rates, stating that the 0 to .25 percent rate would remain in place.
According to the FOMC’s statement, this decision was made to “support continued progress toward maximum employment and price stability” and largely factored in energy prices, household spending and incomes, unemployment rates, inflation and other economic influencers.
Despite opting to continue with its current interest rates, the FOMC’s statement did recognize that increases in the future are possible.
“In determining how long to maintain this target range [0 to .25 percent], the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation,” the statement read. “The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”
When those increases may come, however, are up in the air.
[updated prediction]
I want to update my prediction on raising interest rates. I content the federal reserve will raise rates later rather than sooner, so I’ve predicted they won’t raise rates in 2015.
Upon further reflection, I believe they may make the initial rate hike this year just to test the market for a taper tantrum. The first rate hike will be largely symbolic and won’t signal the beginning of a sustained program of rate hikes.
When I stated I believe they won’t raise rates in 2015, I mean to say I believe they won’t embark on a sustained program of regular rate hikes in 2015.
The more important rate hike will be the second one because it will signal the beginning of a regular program of rate hikes, and I don’t believe that will happen until spring of 2016.
A 0.25% rate hike is so meaningless it’s beyond ridiculous
LOL, good one!
ZIRP (implemented as a “temporary emergency measure”) still in play ~7yrs.
I believe they have realized their policies do nothing to help the real economy and only serve to inflate asset prices. They have done a great job of keeping alive unproductive and speculative zombie businesses. Now they are going to try and do a very slow deflation of the asset bubble they have built up over the last 6 years.
Yes, they will not be able to raise rates 1/4 point at every meeting like they did in 2005. If they do that, the economy will crumble. I could see them embark on an every-third-meeting schedule or something like that.
When the first few rate hikes finally happen I believe it will have a net positive effect. The interest rate hike will be near meaningless and it it will show confidence.
However there will be a tipping point. My guess is it’s somewhere in the 1-2% range barring very high inflation which would change everything.
I suspect you’re correct. The first few rate hikes will be symbolic, but there is a point where rate hikes raise the cost of borrowing across the entire yield curve, and that’s when things will get interesting. Also, since rising yields correspond to falling bond prices, rising rates starts to erode wealth, particularly for those on the long end of the yield curve.
Of course, since the entire yield curve has flattened so much, it’s possible that even a small increase in the base rate will reverberate through the system. The fear of that happening will contribute to the taper tantrum when the first rate hike occurs.
So far they have gotten exactly what they wanted:
The ruse of near zero inflation with very high inflation of asset values.
That should be the stated intention of the Federal Reserve.
Unfortunately all domestic necessities have inflated at a very high rate… So I agree more Baltimores are inevitable.
They should do a small rate hike this year because the politics of next year will make it very difficult.
I wonder how rate hikes would play out during an election, particularly since the incumbent isn’t running.
My guess is that each side will claim that rising rates are a sign of economic strength due to the implementation of their economic policies. Both parties will lie about that, but it’s imperative that they spin it positively and spin it in a way that gives them credit for the positive outcome.
What both parties want during an election year is stability and if the fed raises rates next year (instead of this year) they threaten stability. It is better to have the sell off occur this summer than next.
A quarter point has very little impact, it will only cut into margins ever so slightly.
People are still going to chase yields in speculative investments when the alternative is 0.25%
Homeownership rate lowest in 25 years
Home prices are rising, and homeownership is falling. How can that be?
If prices are rising, it must be because there is increasing demand for homes, but if there is increasing demand, then why are there fewer homeowners?
[Actually, no, there does not need to be increasing demand. An artificial decrease in supply can cause the same increase in price, which is what we have today.]
It has to do with this: math. The homeownership rate in the first quarter of this year fell to 63.7 percent, the lowest since 1990, according to the U.S. Census. The homeownership rate is the ratio of households that own to overall households—the remaining being rental households.
We already know that rentership has increased dramatically, and continues to do so, as the economy improves and more kids move out of their parents’ basements and into rental apartments. Rental vacancies are at historic lows. Rents are soaring.
The pool of total “households” or occupied houses, which includes both owners of those houses and renters of those houses, is getting bigger. The gain is all on the renter side, the census report also notes. That therefore means that the share of owners of that total pool, which is the homeownership rate, must get smaller, even if there wasn’t a big drop in the actual number of people who own homes. There’s the math.
“Inventory remains tight in many markets and that’s helping keep a floor under price gains,” said Jed Kolko of Trulia, a real estate company. “Because of demographics and a strengthening job market for young adults, there is very strong rental demand.”
Millennials Are Moving Out of Basements and Into Apartments
After shacking up with family or friends for the past few years, millennials finally seem to be striking out on their own.
The number of households grew by 1.48 million in the first quarter from a year earlier, following a 1.66 million increase in the final three months of 2014, according to data released Tuesday by the Census Bureau. While the numbers can be volatile, it marks the fastest back-to-back gains in household formation since the second half of 2005.
http://media.gotraffic.net/images/iDRLduIIuClE/v1/-1x-1.jpg
The census data don’t break out age groups, so they don’t specify who is forming these new households. Separate reports show that the previous weakness in household formation was driven by millennials—young adults born after 1980—so that group is most likely driving the improvement, says Maury Harris, economist at UBS Group in New York.
[Que the optimistic spin]
“This is positive for the economy,” Harris says. “It would be better if they were buying, instead of renting, but it still helps if they’re renting, instead of living at home.”
That’s because the new tenants have to fill their apartments with stuff—coffee makers, televisions, and bed frames from Ikea. While they’ll probably be buying less than if they were new homeowners, consumer spending should still get a nice boost, Harris says.
More people seeking apartments also puts upward pressure on rents. As that happens, it will make buying a home more compelling to renters with sufficient credit.
“There’s an effect on homeownership and home sales down the road,” Harris says. “It’s a plus for the economy.”
Gold futures tumbles more than $30 an ounce
Gold found little support from a weaker dollar Thursday, with prices dropping by more than $30 an ounce as investors took a cue from rising U.S. Treasury yields after the Federal Reserve’s policy statement a day earlier.
A drop in weekly U.S. jobless claims also pressured prices for the precious metal.
Gold for June delivery on Comex GCM5, -2.49% sank $32.60, or 2.7%, to $1,177.40 an ounce, leaving the metal on track for monthly loss of 0.4%. Prices haven’t settled at a level this low since Friday.
July silver SIN5, -4.50% dropped 77.7 cents, or 4.7%, to $15.925 an ounce, trading down 4% for the month.
Gold fell back toward session lows after data showed first-time claims for U.S. unemployment benefits fell much more than expected to a 15-year low of 262,000 in the week ended April 25.
“Gold has been hit not just by an improvement in the jobless figures, but the banner headline of unemployment claims at ‘a fifteen-year low’,” Ross Norman, chief executive officer at Sharps Pixley told MarketWatch in an email. “Interesting to note that the last time unemployment was at these levels in April 2000, it marked the peak in the dot-com bubble. With that in mind it is counter-intuitive that gold would have been so heavily sold off.”
Check out this whipsaw action…
http://stockcharts.com/h-sc/ui?s=GLL&p=D&yr=0&mn=1&dy=0&id=p50968825751
A large number of futures traders are getting wiped out by that action.
Gold is still in a bear market. Some just never learns or too greedy and switches side to to buy the bounce instead of waiting to short the pop. Oh well…
They are going to raise rates and perhaps more than once this year. Their continued low rates are destroying the real economy. At some point if they continue there will be a mass exodus out of the dollar or we will see dozens of Baltimores. Prepare for margin calls
So far predictions of a collapsing currency haven’t happened. If anything, the dollar is too strong right now. In fact, the strength of the currency in the absence of higher rates is largely why I don’t believe they will raise rates this year.
That’s certainly one of the problems now, if they raise rates it will strengthen the dollar further.
Instead rates may stay low and due to dollar strength… inflation on all imported good will be near zero which make up most of what we consume.
Unfortunately inflation on all domestic necessities will be very high as they have been over the last 3 years. (Rent, house prices, health care, services, education, etc etc)
Planet Reality,
For the last several days, you have been respectful in the comments and provided astute observations that have contributed to the conversation. I want you to know I recognize this and appreciate it.
Very astute!
That means selling assets to cover those calls.
btw, they’re sold to cover typically in this order…
1)cash; if none…
2)gold; if already sold…
3)real estate
Haven’t the collapsing dollar and hyper-inflation arguments been debunked for years now? We were guaranteed by many pundits that this would immediately occur with ZIRP and QE. They were certain of this fact.
The Chinese housing market:
http://economistsview.typepad.com/economistsview/2015/04/-demystifying-the-chinese-housing-boom.html
I can’t fathom spending 8-10x my household income on a house. And here I am sweating spending 3.5x my household’s base salary on a house (I conservatively don’t include new or vesting stock grants, nor bonuses in “income”). But I guess the downpayment percentage matters here. A 3-4x ratio seems reasonable putting 20% down, but a higher percentage would be reasonable if putting down 50%.
But then again, Chinese are savers (multi-generational wealth anyone?) so that factor may only be 5-6x if they already have 40-50% down. But the Chinese who doesn’t have parents with assets still will have problem with the price.
Well, another person in my life is making a run at becoming a boomerang buyer. This time somebody I work with is grilling me about what they need to do to be ready to buy again once their three-year FHA waiting period ends. He is literally counting down the months to March 2016 when he will be able to buy again, and is already running the numbers on how much DP will be needed, checking his credit report and getting errors fixed, and looking at prices for different neighborhoods.
That’s the second occurrence of a boomerang buyer in the making popping up in as many weeks. Rising home prices have their attention and they want to get in on the action before rates increase significantly.
I stand by my earlier prediction:
-10% of low-income subprime buyers will reenter the market, in line with the Fed’s study.
-50% of middle-to-high income, alt-a and prime buyers will reenter the market.
If you average these groups together it could easily be something like 1/3 of former owners that eventually own again.
It only takes 100 people a year like this to have a big impact on the market in an area like Orange County.
My guess is the number is higher than 100 in the OC
I’m trying to think of all the people in my circle that had a short sale/foreclosure. Most were strategic, although the guy from today was legitimately due to job loss (mortgage industry) and a failed side business.
Of the eight people I can think of, they break down like this:
-Three of them did a buy-and-bail and never stopped owning. They bought at the bottom when the market crashed just before “letting go” of their prior peak bubble purchase.
-Two have expressed interest recently in becoming boomerang buyers.
-Two are in a position to buy again, but haven’t expressed interest in buying (that I know of).
-One went through divorce and doesn’t have the ability or desire right now.
So really 7 out of 8 people that I know in the middle/high income category are in a position to buy again, and 5 of those either already own due to buy-and-bail or are about to pursue boomerang buying in the near future.
Desire does not equal demand so we’ll see if my two aspiring boomerang buyers are in fact successful. I suspect some downward substitution will be necessary to re-enter the market.
Based on this purely anecdotal tally, I think my 50% estimate for mid/high income earners is going to be close to the mark.
Mellow Ruse,
You could be right. That’s certainly been the reasoning behind the analysts that believe boomerang buyers will come back in large numbers.
I believe fewer boomerang buyers will materialize because many of them were either lacked the requisite discipline to maintain home ownership when they bought, or they developed poor financial management skills when Ponzi money was widely available and free flowing. One of my main criticisms of the banks during the housing bubble was the poor financial management skills they enabled in so many people. This has an effect, and we see this manifest in the inability of boomerang buyers to qualify for mortgages again.
It isn’t that boomerang buyers won’t want to own again (some won’t because they were burned), but most boomerang buyers won’t manifest the discipline to save and consistently make payments to put themselves into a position to buy a home. And considering FHA allows really low FICO scores and only requires 3.5% down, the bar isn’t very high, yet boomerang buyers aren’t qualifying and buying homes in large numbers.
I don’t believe that’s going to change. They are a lost generation.
The hopium theory crowd is clearly out of touch here, so I’m with IR on this one.
Well, it would seem 50% is “in the bag” then. Thanks for confirming. 🙂
50% was “in the bag” back in 06/07.
Cheers!
I will be a boomerang buyer just as soon as I can find a decent house that is affordable and does not go to an all cash buyer. This tight inventory is an absolute suck!