The Journal of Real Estate Research conducted a study of the impact of foreclosures on neighborhoods. Surprising to no one, the results show that foreclosures definitely hurt neighborhoods and home values. Although the study states the obvious, it is important to note the data and analysis prove the impact that the surge in foreclosures has had/could have on our housing industry and the economy.
Here are excerpts from the study findings:
Housing foreclosures likely have little neighborhood impact if there are few foreclosures in a neighborhood and the foreclosed housing can resell quickly. However, when there are many foreclosures along with a sluggish housing market, foreclosures can lead to neighborhood destabilization, which should cause house prices to further fall.
As an added bonus, foreclosed properties tend to produce negative spillover effects including vacancies, reduced maintenance of the foreclosure property, and increased neighborhood crime.
Foreclosures cause lower sale prices, which increase the probability of more loan defaults.
As foreclosed housing builds up in a neighborhood, home sellers may delay the sale of their house in order to avoid a loss.
The foreclosures impact on neighboring sales prices. For example, assume a family purchased a home for $200,000 six months ago. Since the purchase, a foreclosure took place within 200 yards of the family's new home. Data shows a decline of 1.1% or about $2,200 in that family's home.
Read the entire study.
Source: Rogers, W., & Winter, W.. (2009). The Impact of Foreclosures on Neighboring Housing Sales. The Journal of Real Estate Research, 31(4), 455-479. Retrieved February 17, 2010, from ABI/INFORM Research. (Document ID: 1940056661).
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