Foreclosed Homes Appreciating Faster than Typical U.S. Home

Foreclosed Homes Appreciating Faster than Typical U.S. Home

Foreclosed Homes Appreciating Faster than Typical U.S. Home

The FINANCIAL -- The value of homes that were foreclosed on during the Great Recession are appreciating rapidly, up 10.3 percent over the past year, according to a new Zillow analysis, while the typical U.S. home is appreciating 6.5 percent annually.

Throughout the recovery, foreclosed homes have gained 74.5 percent in value, compared to about 46 percent for all homes. This means that homes that were foreclosed on during the housing crisis have made far greater gains in value than the typical U.S. home.

While the value of foreclosed homes is quickly appreciating – they finally passed their pre-recession peak 10 months earlier than all homes – the people who lost their homes to foreclosure during the housing bust have not benefited from these gains. And because nearly half of all homes foreclosed on during the bust were low-end homes, the housing bust widened the gap between the rich and poor in the U.S.

During the run-up to the housing bubble, many low-income earners were able to qualify for a mortgage and buy a home. Because of this, the homeownership rate rose from about 65 percent in the mid-1990s to almost 70 percent in 2006. When the housing market crashed in 2007, millions of American homeowners had to walk away from their homes, missing out on the opportunity to gain equity as home values recovered in the years to come.

Many lower-income households were able to buy homes in the run-up to the housing bubble, causing the homeownership rate to rise from about 65 percent in the mid-1990s to almost 70 percent in 2006.

Of all foreclosed homes, about 45.4 percent were among the least expensive third of homes. Only 16.9 percent were among the most expensive third of homes. San Francisco, Bridgeport, Conn., and San Jose, Calif. had the greatest share of foreclosed homes among the bottom-tier.

Foreclosed homes gained value faster than other homes, and in many markets, are more valuable now than ever before. Since the recovery, foreclosed homes have gained 74.5 percent in value, while the typical U.S. home has gained just 46 percent. Also, while appreciation has slowed over the past year for all homes, it has accelerated for foreclosed homes.

In many cases, investors bought foreclosed homes and converted them into rental properties, benefiting from the recovery as home values bounced back. The percentage of single-family homes being rented is up from 2005, but appears to have peaked at 28.4 percent in 2016. Since 2016 it has fallen to 28.1 percent.