There are more and more reports of investors buying homes out of foreclosure either as rentals or to flip houses as prices continue to recover. The New York Times Magazine tells the story of one home in Seattle which was lost to foreclosure in the recession, then purchased by an investor and sold for an 87% gain not much later. There is more to the story than the recession and foreclosure – home price shifts made this tale possible and the biggest shifts and most damage were among the least expensive homes. The chart shows the S&P/Case-Shiller Tiered Price Indices for Seattle. The Seattle home price index is broken into three sub-indices for low, mid and high priced homes. The blue line represents those homes at the bottom third of the overall price range. These saw the largest price gains as the indices in June, 2007, the biggest declines at the bottom in early 2012 and the strongest rebound to the most recent data. The low-price end of the market is not simply the most volatile; it is where most of the mortgages with extreme loan-to-value ratios, initial teaser rates and other “features” were. (Click on the chart for a larger image)
The spread between the high price and low price houses varies from city to city. The chart below, for New York City, shows a larger spread but a smaller bounce in recent months than Seattle.