,,Neighborhood Effects of Concentrated Mortgage Foreclosures 

Neighborhood Effects of Concentrated Mortgage Foreclosures 


 

Publication Date: October 2008

Publisher: Furman Center for Real Estate

Author(s): Jenny Schuetz; Vicki Been; Ingrid Gould Ellen

Research Area: Social conditions

Keywords: mortgage foreclosure; property values; Affordable Housing

Type: Working Paper

Abstract:

As the national mortgage crisis has worsened, an increasing number of communities are facing declining housing prices and high rates of foreclosure. Central to the call for government intervention in this crisis is the claim that foreclosures not only hurt those who are losing their homes to foreclosure, but also harm neighbors by reducing the value of nearby properties and in turn, reducing local governments’ tax bases. The extent to which foreclosures do in fact drive down neighboring property values has become a crucial question for policy-makers. In this paper, we use a unique dataset on property sales and foreclosure filings in New York City from 2000 to 2005 to identify the effects of foreclosure starts on housing prices in the surrounding neighborhood. Regression results suggest that above some threshold, proximity to properties in foreclosure is associated with lower sales prices. The magnitude of the price discount increases with the number of properties in foreclosure, but not in a linear relationship.