The neighborhood effects of foreclosure

Abstract

Neighborhood quality is an important attribute of housing yet its value is rarely known to researchers. We argue that changes in nearby foreclosures reveal changes in neighborhood quality. Thus estimates of the hedonic price of nearby foreclosures provide a glimpse of values that people hold for local neighborhood quality. The empirical models include controls for both spatial dependence in housing prices and in the errors. The estimates indicate that nearby foreclosures produce externalities that are capitalized into home prices--an additional foreclosure within 250 feet of a sale negatively impacts selling price by approximately $1,666, ceteris paribus.

Spatial Analysis of Clustering of Foreclosures in the Poorest-Quality Housing Urban Areas: Evidence from Catalan Cities

“…Several case studies have highlighted the existence of "neighborhood effects", or the direct contribution that foreclosures have made to urban deprivation and forced displacements [20,21]. Within this context, it is possible to observe links between the spatial concentration of foreclosures and falling property values at the neighborhood level [22][23][24][25][26].…”

The Impact of Housing Market Conditions on Residential Property Upkeep

“…Previous empirical work generally supports the conclusion that default events lead to decreased neighborhood home prices (Harding, Rosenblatt & Yao, 2010;Lin et al, 2008;Leonard & Murdoch, 2009;Immergluck & Smith, 2005;and Cotterman, 2001). Leonard & Murdoch (2009) propose that these changes may occur through a decrease in local public good contributions and this mechanism is supported by the timing of the price impacts of foreclosure (Harding, Rosenblatt et al 2009).…”

“…Alternatively, they may invest more in maintenance in hopes of maintaining the home's value despite the poor market conditions. Both of these explanations are supported by the work of Galster (1987) home upgrades that impact neighborhood quality-such as improvements that improve the aesthetic quality of the housing unit-then these programs have the potential to counteract the neighborhood property value declines induced by high foreclosure rates (Harding, Rosenthal et al 2007;Leonard and Murdoch 2009;Lin, Rosenblatt et al 2009). …”

“…Leonard & Murdoch (2009) propose that these changes may occur through a decrease in local public good contributions and this mechanism is supported by the timing of the price impacts of foreclosure (Harding, Rosenblatt et al 2009). This suggests that when default occurs maintenance decreases, but it is unknown if there is a smooth transition whereby maintenance decreases with increases in default risk.…”

The spatial extent of the effect of foreclosures on crime

“…The general consensus is that foreclosures contribute to neighborhood instability. 1 Until recently, scholars have primarily focused on the external effect of foreclosures on property values (Immergluck and Smith, 2006a;Schuetz, Been, and Ellen, 2008;Harding, Rosenblatt, and Yao, 2009;Lin, Ronsenblatt, and Yao, 2009;Leonard and Murdoch, 2009). However, a rapidly expanding strand of scholarly research has examined the effects of foreclosures on crime (Acevedo, 2009;Bess, 2008;Baumer, Wolff, and Arnio, 2012;Ellen, Lacoe, and Sharygin, 2013;Goodstein and Lee, 2010;Harris, 2011;Immergluck and Smith 2006b;Jones and Pridemore, 2012;Katz, Wallace, and Hedberg2013; Kirk and Hyra 2012;Stucky, Ottensmann, and Payton 2012;Wallace, Hedberg and Katz, 2012;Williams, Galster, and Verma, 2013;Wolff, Cochran, and Baumer, 2013).…”