Writing in the New York Times, Catherine Rampell details in Boom, Bust, Flip how it is becoming clear to many average Americans just how skewed the financial system is to the rich and powerful in the world of finance as Wall Street’s bailout has allowed investors to buy and then resell at a profit homes of ordinary Americans who didn’t get a bailout.
Now that, in some cases, home prices have risen back to levels that would make foreclosed homeowners whole again (had they gotten a bailout), they’re on the outside looking in.
Tim and Jenni Earll didn’t have a lot of money saved up, but they’d seen enough of their friends buy homes to feel like fools for burning their cash on rent. So they took out a 30-year mortgage and bought a fixer-upper on a quiet street in Seattle’s Roxhill neighborhood for $309,900. That was in the spring of 2007.
Tim and a cousin spent the next couple of years trying to build some “sweat equity” by redoing the electrical wiring, plumbing and landscaping, but when Jenni lost her administrative position, they had to delay the improvements. Soon after, Tim’s work at a glass company began petering out, too. Desperate to hold on to their house, they sought a loan modification, but by the end of 2010, the bank refused to refinance. The following summer, it foreclosed and auctioned off their home to AKA Investors L.L.C., which paid $155,000 in cash for the house.
Now, five years after the start of the financial crisis, the housing market has come back, and many of these investors are cashing in. According to tabulations by Redfin, an online real estate listings site, banks have already sold about 1.5 million of the nearly 2 million homes that were foreclosed on during the past half-decade. Resales are becoming more common and can be hugely profitable. A house in Redwood City, Calif., for instance, was sold in a foreclosure auction in 2011 for less than half what the evicted owner paid in 2006. Ten months later, it was flipped for close to its previous price. Another house in Los Angeles went into foreclosure in 2012 and was flipped seven months later for a markup of $254,000, or 66 percent. Of the 87,062 foreclosures in the last five years that were bought by corporate investors and have been flipped, about a quarter were sold for at least $100,000 more than what the investor originally paid, according to Redfin. (Although it’s impossible to know how much investors spent on upgrades or renovations.)
That includes the Earlls’ house. Last year, AKA flipped it for $290,000, an 87% markup.
There’s more to this story, but what really grabbed my attention was the idea of the former homeowners driving by their old place, knowing that their lives would be fundamentally different today if they’d been given the same sort of help that big banks were given.