Foreclosed Property Investors in a Strong Housing Market City: A Case Study of Boston

Lauren Lambie-Hanson
Federal Reserve Bank of Philadelphia

Christopher E. Herbert
Irene Lew
Rocio Sanchez-Moyano
Joint Center for Housing Studies of Harvard University

Falling home sales prices during the recent mortgage crisis were exacerbated by an increased number of properties coming on the housing market through foreclosures and short sales. Real estate investors made up a significant share of buyers of foreclosed residential properties in cities around the country, leading many to ask if, on net, they provide a stabilizing influence on the market or are detrimental. In this case study, we explore the scale and nature of investor activity in acquiring foreclosed properties in the heart of the Boston area. We find that investors purchased about one-half of foreclosed properties. Despite competition from owner-occupants and mission-driven organizations, investors were successful in purchasing such a large share of foreclosed properties because of several characteristics we discuss, particularly their greater access to financing and ability to pay cash. Although opportunities for favorable returns on investment encourage investors to purchase homes in the most distressed neighborhoods and to make property improvements, investors may not pursue the most severely distressed foreclosed properties or perform the degree of rehabilitation desired by nonprofit organizations.