Forced Sales and House Prices

Abstract

This paper uses data on house transactions in the state of Massachusetts over the last 20 years to show that houses sold after foreclosure, or close in time to the death or bankruptcy of at least one seller, are sold at lower prices than other houses. Foreclosure discounts are particularly large on average at 27% of the value of a house. The pattern of death-related discounts suggests that they may result from poor home maintenance by older sellers, while foreclosure discounts appear to be related to the threat of vandalism in low-priced neighborhoods. After aggregating to the zipcode level and controlling for regional price trends, the prices of forced sales are mean-reverting, while the prices of unforced sales are close to a random walk. At the zipcode level, this suggests that unforced sales take place at approximately efficient prices, while forced-sales prices reflect time-varying illiquidity in neighborhood housing markets. At a more local level, however, we find that foreclosures that take place within a quarter of a mile, and particularly within a tenth of a mile, of a house lower the price at which it is sold. Our preferred estimate of this effect is that a foreclosure at a distance of 0.05 miles lowers the price of a house by about 1%.

Do foreclosures cause crime?

“…Most notably, a growing number of papers study the impact of foreclosures on neighboring home values (Immergluck and Smith, 2006a;Schuetz, Been, and Ellen, 2008;Harding, Rosenblatt, and Yao, 2009;Haughwout, Mayer, and Tracy, 2009;Lin, Rosenblatt, and Yao, 2009;Rogers and Winter, 2009;Hartley, 2010;Wassmer, 2010;Campbell, Giglio and Pathak;Gerardi, Rosenblatt, Willen, and Yao, 2012). The papers vary in their methods but several use statistical techniques to demonstrate that foreclosures actually lead to reductions in with such reductions.…”

“…Thus, we generally show both sets of results. 10 Finally, to further test the direction of causality, following Schuetz et al (2008) and Campbell, Giglio, and Pathak (2011), we estimate the relationship between past foreclosure starts on the blockface and crime while also controlling for future foreclosures on the blockface (a count of the number of foreclosure starts in the 18 months following the quarter for which we measure crime). Specifically, we estimate:…”

Expectation Adjustment in the Housing Market: Insights from the Scottish Auction System

“…unseen problems with the property, financial issues, time constraints) of the seller. Hence, setting a very low asking Expectation Adjustment in the Housing Market 5 price, much below the reservation price may not necessarily attract more bidders or reduce TOM (see for example Campbell et al, 2009;Haurin et al, 2008).…”

House Price Moments in Boom-Bust Cycles

“…Just as there are a host of possible explanations for the run-up in house prices, there are many possible contributors to the bust. One potentially exacerbating factor is foreclosures, discussed in Campbell, Giglio, and Pathak (2011). by each MSA's population of housing units, depicted by the dashed line, indicating that larger cities experienced higher average house price growth rates during the most recent boom.…”