More than 7 million homeowners who suffered a foreclosure or short sale during the housing crisis are poised to become buyers again.
Over the next eight years, nearly 7.3 million Americans who lost their homes in the housing crash will become creditworthy enough to buy again, according to a new analysis.
RealtyTrac, a real estate information company and online marketplace for foreclosed properties, estimates that these “boomerang buyers”—those who suffered a foreclosure or short sale between 2007 and 2014—are rapidly approaching, or already past, the seven-year window “conservatively” needed to repair their credit.
This year, the firm expects, more than 550,000 of these buyers could be in a position to get back into the market. The number of newly creditworthy individuals will then top 1 million between 2016 and 2019 and gradually decline to about 455,000 in 2022.
RealtyTrac notes that the return of these former homeowners could have a strong effect on housing markets with a particular appeal to the boomerang demographic: areas with “a high percentage of housing units lost to foreclosure but where current home prices are still affordable for median income earners” and a healthy population of Gen Xers and Baby Boomers, “the two generations most likely to be boomerang buyers.”
Based on those criteria, the analysis targets metro areas surrounding Phoenix (with an estimated 348,329 potential boomerang buyers), Miami (322,141), and Detroit (304,501) as the most likely to see an uptick in return buyers.
Chris Pollinger, senior vice president of sales at First Team Real Estate, told RealtyTrac that previously foreclosed Americans shouldn’t rule out another try at homeownership. “The housing crisis certainly hit home the fact that homeownership is not for everyone, but those burned during the crisis should not immediately throw the baby out with the bathwater when it comes to their second chance,” Pollinger said.
Here are the top 10 areas that could see a boom in boomerang buyers:
A tight inventory of houses for sale has been stymying buyers who want to trade up. That could change soon.
Joe and Debbie Valerio, a couple in their 60s, put their Westport, Conn., home of more than 20 years on the market because it was getting too big for them.
When they found a nearby condo they loved, they pounced. That set off a chain reaction allowing Peter and Leah Baiocco, a couple in their 30s, the ability to trade up.
The Baioccos lived a few miles away, contemplating a future move to a bigger home once kids came along. With favorable economic conditions, they jumped at the chance to buy the Valerios’ $2.7 million house last April. After renting it out for nearly a year, the Baioccos’ starter house in Fairfield, Conn. is on the market for $739,000.
This seemingly simple sequence of events is still relatively rare in the U.S. housing recovery. Despite an improving economy and rock-bottom rates, inventory of available homes is inconsistent. Anything more than a trickle of listings sends prices down, causing sellers to pull their homes off the market.
Then prices go up again because competition gets fierce, and sellers re-emerge. As a result, a bustle of trade-up activity is expected for this spring’s selling season, before conditions change again.
“I think a lot of people have made a lot of money in the stock market the last few years. People who want to enjoy a luxury home, now is the time. Everyone has more cash available to them,” says Ken Barber, a real estate agent in Wellesley, Mass.
Other positive signs: new single-family housing starts are at a high since 2008, according to the Commerce Department’s latest report.
Also, fewer homeowners are renting out their homes to delay selling them, down to 35% in 2014 from 39% in 2013, according to Redfin, a real-estate brokerage.
And more consumers have positive equity. Last spring, 19% of homeowners in Redfin markets (such as Atlanta and Philadelphia) had low or negative equity. That was down to 11% in November. Nela Richardson, Redfin’s chief economist, expects it to hit 8% by March 2015.
Even better for buyers, interest rates are near-historic lows below 4%. “The question of staying versus leaving is shifting. For people who were afraid to leave their mortgage because they thought it was the best they’re ever going to get, now there is another good mortgage around the corner,” Richardson says.
Those trading up in 2015 should hit a sweet spot of selling near the top but not buying at the top, says Margaret Wilcox, an agent from agent in Glastonbury, Conn., for William Raveis.
Wilcox says a client couple recently traded up from a $500,000 house to a $1 million home. They did not get quite the price they wanted for the sale of their old home, but they got a discount of nearly $300,000 on their new purchase, Wilcox says.
There are a few red flags for buyers and sellers. Seller confidence is still low, with just 35% of sellers thinking now was a good time to sell, versus 48% the previous year, according to Redfin.
Keith Jurow, a housing market analyst who writes the Capital Preservation Real Estate Report, is something of a doomsayer and thinks talk of a housing recovery “is phony and only an illusion,” he says.
Given the number of mortgages originated between 2004 and 2010, he feels that too many of the people who would like to trade up still have little or no equity in their homes and are not prepared to do a sale below their purchase price.
“Unless you bring more cash to the table, you can’t trade up,” Jurow says.
Also, foreboding makes some people want to act now. They do not want to be the family that missed their chance, adds Bob Walters, chief economist for Quicken Loans. “People won’t delay forever,” he says.
The Valerios and the Baioccos have only happy thoughts about their real estate choices. They love their new homes.
“In our mind, it’s the house we’re going to be in forever,” says Peter Baiocco.
No, it's not New York or San Francisco. Guess again.
The list was compiled based on crime data, median household income, poverty rates, and educational attainment rates
The number of violent crimes dropped across the United States by 4.4% in 2013 compared to the year before, according to estimates released by the Federal Bureau of Investigation (FBI). In the last decade, the number of violent crimes declined by nearly 15%.
In a previous interview with 24/7 Wall St., John Roman, senior fellow at public policy research organization The Urban Institute said, “A 4.4% reduction in violent crime is astonishing. If you saw a similar increase in GDP, or a similar decrease in unemployment, it would be huge national news.”
The national improvement in crime levels has not been uniform across all states, nor were the resulting crime rates. While some states were relatively more dangerous despite the improvement, others were considerably safer than most states. In Vermont, the violent crime rate dropped by more than 19% in 2013 from 2012 — the largest reduction in the country. The state was also the safest, with 115 violent crimes reported per 100,000 people.
Nationwide, 368 violent crimes were reported for every 100,000 people in 2013. Such crimes include murder, rape, aggravated assault, and robbery. In six of America’s 10 safest states, there were less than 200 violent crimes reported per 100,000 residents. Based on violent crime rates published by the FBI’s 2013 Uniform Crime Report, these are America’s safest states.
Murder and nonnegligent manslaughter were especially uncommon in the nation’s safest states. Half of the 10 states reported less than two such crimes per 100,000 people last year, and the murder rates in all of the safest states were below the national rate of 4.5 incidents per 100,000 people. Similarly, aggravated assault rates did not exceed the national rate of 229 incidents per 100,000 Americans in any of the safest states. In three states — Kentucky, Maine, and Vermont — less than 100 assaults were reported per 100,000 state residents last year.
Not only were residents of these states relatively sheltered from violence, but other sorts of crimes were also less common. For example, nine of the 10 safest states reported less property crimes per 100,000 residents than the national rate of 2,730 property crimes per 100,000 Americans. Motor vehicle crimes in particular were especially uncommon. There were less than 100 vehicle thefts reported per 100,000 state residents in five of the 10 states, versus 221.3 such thefts per 100,000 people nationwide.
While explanations for the level of safety in a particular area are by no means concrete, socioeconomic indicators are powerful predictors of crime. Just as in large U.S. cities, income plays a major role at the state level in predicting crime levels. A typical household earned more than the national median household income of $52,250 in six of the 10 states last year. Kentucky households were the exception among the safest states, with a median income of less than $44,000.
People living in the nation’s safest states were also far less likely than other Americans to live in poverty. The poverty rate in all but two of the 10 states was lower than the national rate of 15.8% last year. New Hampshire, the sixth safest state, led the nation with just 8.7% of residents living below the poverty line in 2013.
Educational attainment rates are yet another factor contributing to violent crime. Lower levels of education result in lower incomes later in life, which in turn can contribute to higher crime rates. In addition, as Roman explained in a previous discussion at the city level, poor education is part of several structural disadvantages that make crime very difficult to address. According to Roman, addressing these underlying economic and social issues is critical to reducing crime. Unsurprisingly, residents in the safest states tended to be more highly educated. More than 90% of adults in seven of the 10 states had completed at least high school last year, versus the national rate of 86.6%. And while less than 30% of Americans had attained at least a bachelor’s degree as of 2013, more than one-third of residents in four of the nation’s safest states had done so.
To identify the safest states in America, 24/7 Wall St. reviewed violent crime rates from the FBI’s 2013 Uniform Crime Report. Property crime rates also came from the FBI’s report. The data were broken into eight types of crime. Violent crime was comprised of murder and nonnegligent manslaughter, rape, robbery, and aggravated assault; and, property crime was comprised of burglary, arson, larceny, and motor vehicle theft. In addition to crime data, we also reviewed median household income, poverty rates, and educational attainment rates from the 2013 Census Bureau’s American Community Survey.
These are the safest states in America.
> Violent crimes per 100,000: 240.7
> Population: 1,015,165
> Total 2013 murders: 22 (tied-6th lowest)
> Poverty rate: 16.5% (19th highest)
> Pct. of adults with high school diploma: 92.7% (3rd highest)
There were nearly 241 violent crimes reported per 100,000 residents in Montana in 2013, a third lower than the national rate. While the violent crime rate fell 5.1% nationwide between 2012 and 2013, it fell more than 13% in Montana. Low crime rates may be attributable to high levels of education. Nearly 93% of Montana residents had at least a high school diploma as of 2013, the third highest rate in the country. Despite the state’s relatively well-educated population, Montana struggled with poverty last year. The state’s poverty rate was 16.5% in 2013, one of only two of the safest states with a poverty rate above the national rate of 15.8%. This was likely due in part to the state’s large Native American population, which tends to be more impoverished.
Read more: States Where People Live Longest
> Violent crimes per 100,000: 223.2
> Population: 5,420,380
> Total 2013 murders: 114 (20th lowest)
> Poverty rate: 11.2% (7th lowest)
> Pct. of adults with high school diploma: 92.4% (4th highest)
Minnesota households had a median income of $60,702 in 2013, more than $8,000 higher than the national benchmark. Additionally, state residents were quite educated, as 33.5% of adults aged 25 and older had obtained a bachelor’s degree as of 2013, well above the 29.6% of adults nationwide. The strong socioeconomic environment likely contributed to the low violent crime rate of only 223.2 incidents reported per 100,000 residents in 2013. Overall, the state’s violent crime rate fell 3.3% despite incidents of murder and nonnegligent manslaughter increasing more than 14% between 2012 and 2013.
> Violent crimes per 100,000: 209.2
> Population: 2,900,872
> Total 2013 murders: 49 (14th lowest)
> Poverty rate: 12.7% (14th lowest)
> Pct. of adults with high school diploma: 91.5% (tied-9th highest)
Only 12.7% of Utah residents lived below the poverty line in 2013, more than 3 percentage points below the national rate. As in several other relatively safe states, Utah had one of the smallest income gaps between rich and poor in the country — relatively few residents lived on less than $10,000 a year and more than $200,000 a year. Despite low poverty rates and a relatively balanced income distribution, Utah was one of only a handful of states where the violent crime rate rose between 2012 and 2013, driven largely by a 10.7% increase in reported robberies.
For the rest of the list, please go to 24/7WallStreet.com.
Rents increased 3.3% countrywide, climbing 15.4% in San Francisco alone
(WASHINGTON, D.C.) — U.S. home rental prices continued to climb at a modest pace in December, but rapidly escalating costs in cities such as San Francisco and Denver suggest that apartment dwellers are facing more financial pressure.
Real estate data firm Zillow says prices increased 3.3 percent in December compared with 12 months earlier. That’s less than the recent appreciation in home values. But a surge in apartment costs in several of the hottest markets suggests that there will be financial challenges for renters who hope to eventually buy homes of their own.
Rents jumped 15.4 percent in the San Francisco area and 10.5 percent in Denver. Tenants elsewhere are catching a break. In Chicago, Philadelphia, Baltimore and Washington, DC, rents rose by less than 2.2 percent over the past 12 months.
Q: We paid a small fortune to have our great room painted last summer—and now that it’s winter, the paint has cracked at nearly every seam in the woodwork! Did we get a bad paint job? Can we demand free touchups?
A: This is an extremely common problem, especially with new woodwork and especially in climates where there’s a wide temperature swing from summer to winter. Your house was painted during the warm weather, when high ambient temperatures (and, depending on where you live, humidity too) make wood expand. Come winter, temperatures and humidity levels drop, wood shrinks, and each piece of trim separates a tiny bit from its neighbor, cracking the paint.
If the cracking is happening along all of the seams, your painter didn’t properly prepare the wood before painting, says Debbie Zimmer, of the Paint Quality Institute, a research arm of Dow Chemical. All of the seams between wood pieces should have been filled with paintable acrylic or siliconized acrylic caulk prior to the job. Unlike paint or other wood fillers, this rubbery material flexes with the wood, stretching and compressing as the boards shrink and swell and preventing the paint from cracking.
But even properly caulked projects will sometimes crack here and there. Most painters offer a two-year warranty on their work—and count on repeat business from good clients—so you should absolutely call your painter and ask him to come back and address the problem. It’s a quick fix for him, Zimmer, says and he should not charge you for the work if it’s within his warranty period. It’s quite possible some cracking will occur again in the second winter, and you can absolutely call him back again for another free touchup.
Don’t delay, because you could miss out on the warranty—and because those cracks will all but disappear when the weather warms up, making it harder to make your case and harder to identify every crack that needs caulk. Still, even if you miss out on the warranty, this job should cost only $200 or $300. Or, if you have experience with caulk and paint, you can fix it yourself: Fill all gaps with top-of-the-line paintable caulk, wipe away excess with a wet rag, allow it to cure for the time recommended on the tube, and then brush on paint. If you’re using leftover paint, first bring it to the paint shop or home center where it was purchased for a free shake to ensure that it’s well mixed.
And next time you hire a painter, make sure to confirm—and perhaps even note on the contract—that he will caulk all seams and joints as part of his prep process.
47% of buyers aren't comparison shopping for a mortgage, and it's costing them tens of thousands of dollars.
When it comes to purchasing a home, most buyers generally don’t have trouble comparison shopping. According to a recent study, 22% of house hunters even described themselves “addicted” to online listings. But while home buyers love shopping for homes, they aren’t doing the same with mortgages. And it’s costing them tens of thousands of dollars.
A new report from the Consumer Financial Protection Bureau shows that 47% of home buyers seriously considered only a single lender or broker before deciding where to apply for a mortgage. And 77% of buyers only applied with one lender or broker instead of applying with multiple lenders and selecting the best offer.
Granted, shopping for a mortgage isn’t nearly as fun as shopping for a house, but rushing this part of the process can cost consumers an enormous amount of money. The bureau’s research showed that a borrower looking for a conventional 30-year fixed rate loan could be offered rates that differ by more than half a percent. According to BankRate’s mortgage payment calculator, the difference between a 4% and 4.5% interest rate for a conventional 30-year fixed-rate mortgage of $200,000 is slightly more than $21,000 over the lifetime of a loan. Put another way, comparison shopping for a mortgage can save you enough money to buy a second car.
Why don’t most buyers make the effort? Aside from the obvious—comparing financial instruments isn’t exactly a day at the beach—the CFPB found that being informed has a lot to do with consumer behavior. Borrowers who felt confident about their knowledge of available interest rates were nearly twice as likely to comparison shop as those who were unfamiliar with the interest rates they could expect to receive.
To solve that problem, the bureau has created a website to educate prospective buyers on the home purchasing process. Among other tools, it offers a page that lets consumers check interest rates for their particular situation using their location, credit score, down payment, and other factors.
The changes will save borrowers an average of nearly $1,000 a year.
The White House announced on Wednesday plans to reduce government mortgage insurance premiums in an effort to make homeownership more affordable for low-income buyers. President Obama is scheduled to talk about the policy in a speech Thursday in Phoenix, Arizona.
In the announcement, Housing and Urban Development Secretary Julián Castro said the Federal Housing Administration would slash insurance fees by more than a third, from 1.35% of the loan amount down to .85 percent. The FHA had a 30% share of the mortgage insurance market in the third quarter of 2014, according to Bloomberg.
Mortgage insurance, required of FHA borrowers, is meant to protect the lenders in case of default by allowing them to recoup some of their losses.
Over the next three years, the FHA projects the rate drop will allow 2 million borrowers to save an average of $900 a year when they purchase or refinance a home. The agency also estimates these savings will encourage 250,000 first-time buyers to enter the market.
The move marks a trend of recent policy changes meant to help low-income Americans get into the housing market. In December, mortgage providers Fannie Mae and Freddie Mac announced that certain first-time buyers could now qualify for a loan with a down payment of just 3 percent of the home’s value.
Taken together, today’s announcement and lower down payment requirements should make the housing market far friendlier for the economically disadvantaged. However, David Stevens, CEO of the Mortgage Bankers Association, told CNBC that the effect of the new policy may not spur an especially large increase in home buying.
“I think the marginal impact on sales will be small because potential buyers make the decision to purchase based on trigger events, such as a new job, marriage, kids, etc,” Stevens told the network. “Changes in affordability only impact how much home they can buy.”
While Democrats have been supportive of policies that aid low-income and new homebuyers, Republicans are concerned that lower insurance premiums could put the government at risk if borrowers once again default in large numbers. The FHA has previously required billions in taxpayer assistance, and while the agency is no longer losing money, its capital requirements will not meet the legal limit until 2016.
The NYPD's legendary Theo Kojak has some wise words for a young couple ready to purchase their first home.
Terri and David came in for a meeting with me. They were expecting a baby and wanted to buy a house.
“I’m a contractor,” David said. “I do painting.” Terri was an attorney with a law firm. Together they made about $150,000.
They had their eye on a $500,000 house, and wanted to make a down payment of 5%, or $25,000. Their question for me: “How should we make the down payment?”
David, who had $30,000 stashed in a safe deposit box, wanted to use that cash for the down payment. Terri wasn’t quite sure that was a good idea. Terri hugged her chair nervously.
Their basic problem was becoming clear: David worked in a business that can be largely cash. Terri liked to follow rules. She wanted to know whether showing up at the closing with a pile of $100 bills would get them into trouble later.
It’s at times like this that you need to remember Telly Savalas. That’s right, the actor who played the detective Kojak in the 1970s TV series of that name. He was famous for sucking on a lollipop and saying, “Who loves ya, baby?”
“You’re asking the wrong question,” I said to them.
I had their attention.
“What both of you should be worried about is that you can’t comfortably afford this house,” I said. “I don’t care where the down payment is currently located. Let me be clear: You’re buying too much house.”
“But the mortgage guy said that we could swing it,” said David. “I should be able to replace the cash in a year. I’ve calculated it all out and we can do it before the baby arrives.”
This is when we need Telly Savalas.
The answer to the question “Who loves ya baby?” is not “your mortgage broker” or “your realtor.”
This is a lesson I learned the hard way.
Before I started working as a financial planner, I didn’t know what I know today. I made a big mistake.
I bought a house I couldn’t afford. That’s not what I intended to do. It’s just that I was listening to the wrong people and not to Telly Savalas.
I focused on how much mortgage a bank would lend me. Here’s what my experience taught: The bankers don’t love me. They don’t give a rip about me. All they care about is making the most money for themselves. They got their money, but I was miserable.
I made the decision in a month or two and locked myself into the expenses for years to come.
In retrospect, this was predictable. A good rule of thumb is that a home is out of your price range if it costs more than two or two-and-a-half times your annual income. The house I bought was way over this range of affordability.
Housing costs soaked up my disposable income and made it tough to save. Living paycheck-to-paycheck, I couldn’t afford a decent vacation. When an emergency arose, I didn’t have adequate funds. So I felt the stress of both the emergency and scrambling to pay for the emergency.
All this stress was unnecessary.
If I did it right, I would have bought a condo that cost less than 2.5 times my annual income — say, $150,000 instead of the $200,000 I spent. And I would have saved up and made a 20% down payment, not the 10% payment I made.
Yes, the location wouldn’t have been as nice. And I wouldn’t have had an extra half-bath and an icemaker, both of which I enjoyed having — but which I didn’t really need.
Mortgage people and realtors will tell you there isn’t much of a difference. Let’s run some numbers, though: what I did, and what I should have done.
|What I did||What I should have done|
|Monthly mortgage and tax payments||1,400||860|
|Total monthly cost||$1,800||$1,170|
Spending $1,170 a month on housing would have been fine. Spending $1,800 made me feel “house poor.” It wasn’t the mortgage. It was everything else.
My message to Terri and David: David, report your income. Then, Terri, it doesn’t matter if the money is stored in a savings account, safe deposit box, or plastic baggie in the basement freezer. Don’t worry about it. And for the question that you didn’t ask: When buying a house, remember who loves ya, baby!
Bridget Sullivan Mermel helps clients throughout the country with her comprehensive fee-only financial planning firm based in Chicago. She’s the author of the upcoming book More Money, More Meaning. Both a certified public accountant and a certified financial planner, she specializes in helping clients lower their tax burden with tax-smart investing.