A rush of so-called ‘zombie’ foreclosures is haunting housing markets across America.
Unscrupulous investors are driving the surge in the Midwest and South, leaving empty homes that are spooking prospective homebuyers.
Normally, a foreclosure – when a lender seizes a home because the owner has fallen behind on their mortgage – leads to a quick sale.
But irresponsible investors who fail to spend on maintaining rental properties often leave them unsellable in the end. These zombie properties are left in such disarray that their infrastructure crumbles, yards deteriorate, and the empty houses turn into magnets for vandals.
There are 25 million investor-owned properties across the US, 882,336 of which were empty last month, according to real estate analytics firm ATTOM.
The problem is most acute in Indiana, where 7.2 percent of investor-owned homes – more than 30,000 properties – were vacant. The counties with the highest foreclosure rates were Grant, Morgan, Noble, Lake and Wayne.
Illinois followed with 6.1 percent empty, while Oklahoma and Alabama had 5.9 percent, and Ohio had 5.8 percent.
These states have drawn heavy investor interest due to their affordability. But slower population growth, weak demand and aging housing stock have left many homes unoccupied.
Unoccupied houses can then destabilize neighborhoods by lowering property values.
‘Vacant homes can invite vandalism, squatting and deterioration, creating safety issues and reducing community appeal,’ Rob Barber, CEO at ATTOM, told the Daily Mail.
A zombie foreclosure is when a property is abandoned before the foreclosure process is completed, leaving a home vacant (Pictured: An abandoned house on Route 66 in Oklahoma)
‘Concentrations of zombie properties can distort housing supply and slow recovery in areas already facing economic or population challenges.’
Properties that are owned by corporate investors rather than individuals are more likely to fall into a zombie state, according to ATTOM.
While they may be a source of rental income or a cash grab via resale or quick flips, they may also fall into disrepair if they are neglected or poorly managed.
‘Responsible investors can offer quality, affordable rental opportunities to families who may be locked out of homeownership due to foreclosure or lost wealth from the recession,’ a report from the Center for American Progress said.
‘But while they can support communities, irresponsible investors can also destroy them by allowing properties to sit empty, declining to bring rental properties up to code, and neglecting tenants’ needs in instances where the home is occupied.’
In Indiana, more than 30,000 homes are currently sitting empty. But in terms of overall investor-owned inventory, Indiana ranks 22nd nationally with about 424,000 total investor-owned properties.
This shows that the issue is not sheer scale, but rather higher relative vacancies, said Barber.
‘Investors have long been drawn to Indiana’s affordability and rental yield potential, but with so much ownership concentrated there, competition and slower demand in some areas may have left more properties unoccupied,’ he said.
‘Vacant homes can invite vandalism, squatting, and deterioration, creating safety issues and reducing community appeal,’ Rob Barber, CEO at ATTOM, told the Daily Mail
Investors are causing a surge in zombie’ foreclosures, which are harming local housing markets in the Midwest and the South
Properties that are owned by corporate investors rather than individuals are more likely to become zombie properties, according to ATTOM (Pictured: a row of neglected storefronts in Blaine County, Oklahoma)
High concentrations of empty properties can start a ‘negative spiral in a local housing market,’ ATTOM CEO Barber said
5.8 percent of investor-owned homes were vacant last month in Ohio (Pictured: A neighborhood in Dayton, Ohio)
The average home value in Indiana is less than the nationwide average at $254,412, according to Zillow.
It is a similar story for the other states with high levels of zombie foreclosures, he explained.
Affordable property draws corporate investors to Illinois, Oklahoma, Alabama and Ohio, but economic volatility in the areas can mean that homes end up empty, which can start a ‘negative spiral in a local housing market.’
‘In some areas, rental demand may not have kept pace with investor supply, leading to higher vacancy levels that are often driven by demographic shifts, job market instability, and mismatches between the type of housing supplied and what local households can afford or need,’ Barber told the Daily Mail.
But despite these pockets, Barber is not necessarily concerned about the state of the US as a whole.
While the rate of zombie homes ticked up a tiny bit this quarter, he said, the overall rate of vacant homes and homes in the foreclosure process has remained remarkably steady.
The states with the lowest vacancy rates in investor-owned properties were New Hampshire, at 0.9 percent, Vermont, at 1 percent, Idaho, at 1.2 percent, and Utah and North Dakota at 1.5 percent, respectively.
‘While there remain some markets with worryingly high rates of vacancies, as a whole it appears that the nation’s buyers are quickly filling homes that become available,’ he added.
