Foreclosed home values rising at a faster pace than the rest of the US property market

The value of homes in the United States that were foreclosed on during the recession a decade ago are appreciating rapidly, up 10.3% over the past year, according to the latest research.

This is substantially higher than the national average rate of price growth of 6.5%, the data from real estate firm Zillow shows.

Throughout the recovery, foreclosed homes have gained 74.5% in value, compared to about 46% 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 US 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, the firm points out.

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 US, it also points out.

The report explains that 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 home ownership rate rose from about 65% in the mid-1990s to almost 70% in 2006.

When the housing market crashed in 2007, millions of American home owners had to walk away from their homes, missing out on the opportunity to gain equity as home values recovered in the years to come.

‘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, and for much of the economic recovery, homes with a history of foreclosure have been a deal. This remains so today, although somewhat less so than a year ago,’ said Zillow senior economist Aaron Terrazas.

‘While the overall market is facing growing headwinds, homes that were foreclosed upon during the bust are picking up steam, speaking to the enduring appeal of affordability. For families who lost their homes during the housing bust and were locked out of the market for several years thereafter, this was a critical lost opportunity,’ he added.

The research also show that of all foreclosed homes, about 45.4% were among the least expensive third of homes. Only 16.9% were among the most expensive third of homes. San Francisco, Bridgeport and San Jose had the greatest share of foreclosed homes among the bottom tier.

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% in 2016. Since 2016 it has fallen to 28.1%.