Foreclosed homes that met their fate during the housing crisis have now recovered to the point where they are gaining value nearly twice as much as other homes—but with no benefit to the original owners of the homes, according to a new analysis from Zillow.
The housing crisis actually worsened the gap between the country’s rich and the poor, since low-end homes were more likely to be foreclosed on, according to Zillow. High-income households made an average of about six times more income than the lowest third of households; by 2015, that number had grown to seven times.
“Income inequality is an important topic in the U.S. right now, because the gap between the richest and poorest Americans is growing,” said Zillow Chief Economist Dr. Svenja Gudell. “Many lower-income Americans lost their homes during the foreclosure crisis, forcing them to pay ever-increasing rents and locking them out of the benefits of the housing market recovery.”
Many low-income earners bought homes during the run-up to the crisis; as a result, the homeownership rate rose from about 65 percent in the mid-1990s to nearly 70 percent in 2006. But many of those homeowners had to walk away and abandon their initial investment when home values crashed in 2007—and they missed the opportunity to gain equity as home values recovered, Zillow reported.
Nearly half of all foreclosed homes (46.7 percent) were among the least expensive third of homes, while only 16.6 percent of foreclosed homes were among the most expensive third, according to Zillow. Foreclosed homes have gained about 39 percent in value since the lowest point in the bust, compared to just 22 percent for non-foreclosed homes.
Zillow reported that many investors have benefited from the recovery in home values, as evidenced by the increase in the percentage of single-family homes being rented out in the past decade from 13 percent up to 19 percent.