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Property value impacts of foreclosed housing acquisitions under uncertainty

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  • Johnson, Michael P.
  • Solak, Senay
  • Drew, Rachel Bogardus
  • Keisler, Jeffrey
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    Abstract

    Community development corporations seek to stabilize neighborhoods affected by the recent foreclosure crisis through acquisition and redevelopment of distressed properties. One rationale for this work is the alleviation or avoidance of negative foreclosure impacts. We estimate the lost value to proximate properties associated with a single foreclosure through a Markov chain representing probabilistic transitions between foreclosure stages. We apply our model to a case study of foreclosure properties in Chelsea, MA. A rank ordering by estimated property value impacts indicates significant potential gains in social value as compared to current community development practice. We extend our basic model to address the effects of clusters of foreclosed units upon the value of proximate properties. This study provides additional support for the use of decision modeling in foreclosed housing acquisition and redevelopment.

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    Bibliographic Info

    Article provided by Elsevier in its journal Socio-Economic Planning Sciences.

    Volume (Year): 47 (2013)
    Issue (Month): 4 ()
    Pages: 292-308

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    Handle: RePEc:eee:soceps:v:47:y:2013:i:4:p:292-308

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    Web page: http://www.elsevier.com/locate/seps

    Related research

    Keywords: Foreclosed housing; Markov chains; Decision models; Policy analysis; Community development;

    References

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    1. William H. Rogers & William Winter, 2009. "The Impact of Foreclosures on Neighboring Housing Sales," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 31(4), pages 455-480.
    2. Christopher L. Foote & Kristopher Gerardi & Paul S. Willen, 2008. "Negative equity and foreclosure: theory and evidence," Public Policy Discussion Paper, Federal Reserve Bank of Boston 08-3, Federal Reserve Bank of Boston.
    3. Harding, John P. & Rosenblatt, Eric & Yao, Vincent W., 2009. "The contagion effect of foreclosed properties," Journal of Urban Economics, Elsevier, vol. 66(3), pages 164-178, November.
    4. Kristopher Gerardi & Eric Rosenblatt & Paul S. Willen & Vincent Yao, 2012. "Foreclosure externalities: Some new evidence," NBER Working Papers 18353, National Bureau of Economic Research, Inc.
    5. Zhenguo Lin & Eric Rosenblatt & Vincent Yao, 2009. "Spillover Effects of Foreclosures on Neighborhood Property Values," The Journal of Real Estate Finance and Economics, Springer, vol. 38(4), pages 387-407, May.
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    7. Tammy Leonard & James Murdoch, 2009. "The neighborhood effects of foreclosure," Journal of Geographical Systems, Springer, vol. 11(4), pages 317-332, December.
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    12. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    13. Ingrid Gould Ellen & Ioan Voicu, 2006. "Nonprofit housing and neighborhood spillovers," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 25(1), pages 31-52.
    14. Kelly D. Edmiston, 2012. "Nonprofit housing investment and local area home values," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 67-96.
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    16. Schuetz, Jenny & Been, Vicki & Ellen, Ingrid Gould, 2008. "Neighborhood effects of concentrated mortgage foreclosures," Journal of Housing Economics, Elsevier, Elsevier, vol. 17(4), pages 306-319, December.
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    Cited by:
    1. Bayram, Armagan & Solak, Senay & Johnson, Michael, 2014. "Stochastic models for strategic resource allocation in nonprofit foreclosed housing acquisitions," European Journal of Operational Research, Elsevier, vol. 233(1), pages 246-262.

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