Foreclosed Homes Are Appreciating Faster than Typical Homes
Investors who bought foreclosed homes at the peak of the financial crisis are reaping huge rewards. Foreclosed homes that were foreclosed on during the recession are skyrocketing in value compared to the typical U.S. home.
The median crisis-era foreclosed home increased 10.3% in value over the past year. Whereas, homes that were not foreclosed on only rose 6.5% overall according to a new analysis from real-estate website Zillow.
Since the recession, foreclosed homes have by increased 74.5% in value. Whereas, the typical U.S. home only gained 46% in value.
Granted, foreclosed homes dropped more substantially in value during the recession.
Zillow senior economist Aaron Terrazas said in the report:
When the housing market tripped up a decade ago, homes that went into foreclosure fell hard their value dropping substantially more than homes that didn’t experience a foreclosure. But markets will never overlook a deal. For much of the economic recovery, homes with a history of foreclosure have been a deal. This remains so today.
Zillow also analyzed who has benefited from the rise in the value of foreclosed homes. Who were the big winners in this? Real-estate investors who purchased foreclosed homes at a significant discount and turned them into rentals. The properties increased substantially in value. They also reaped the rewards of rising rents.
Most Foreclosed Homes Belonged To Low-Income Homeowners
Those factors made matters worse for low-income Americans. Low-income Americans made up the majority of households that fell into foreclosure during the crisis. Loose lending standards allowed many of these people to purchase homes. This benefitted predominantly low-income Americans in the bottom third of the market in terms of home value.
The initial waves of foreclosures drove down the value of these entry-level homes. Thus, pushing many homeowners into negative equity meaning they owed more on the loan than their home was worth. That made it difficult or impossible for them to refinance into a better loan. As a result, many of them went into default and then foreclosure.
These Foreclosed homeowners have missed on the price appreciation their former properties. Zillow states this has led to a widening in the wealth gap across the country.