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Foreclosures and House Prices

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  • Michele Loberto

    (Bank of Italy)

Abstract

This paper studies the impact of foreclosures on house prices in Italy using a large dataset of online listings provided by Immobiliare.it, the most popular online portal for real estate services in Italy. We estimate that the foreclosure discount is considerable, and this would suggest a high degree of market segmentation and limited spillovers from foreclosures to the market for non-foreclosed homes. However, by exploiting the exogeneity of the market entry of foreclosures, we find that new foreclosures increase home sellers’ propensity to adjust their list price. Moreover, following the methodology in Campbell et al. (Am Econ Rev 101(5):2108–2131, 2011), we show that foreclosure listings have a significant negative impact on the prices of non-foreclosed nearby homes. Our evidence is quantitatively consistent with the recent literature on the impact of foreclosures on the US housing market.

Suggested Citation

  • Michele Loberto, 2023. "Foreclosures and House Prices," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 9(1), pages 397-424, March.
    • Handle: RePEc:spr:italej:v:9:y:2023:i:1:d:10.1007_s40797-021-00166-z
    DOI: 10.1007/s40797-021-00166-z
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    References listed on IDEAS

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    1. Michele Loberto & Andrea Luciani & Marco Pangallo, 2022. "What Do Online Listings Tell Us about the Housing Market?," International Journal of Central Banking, International Journal of Central Banking, vol. 18(4), pages 1-52, October.
    2. Adam M Guren & Timothy J McQuade, 2020. "How Do Foreclosures Exacerbate Housing Downturns?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(3), pages 1331-1364.
    3. Atif Mian & Amir Sufi & Francesco Trebbi, 2015. "Foreclosures, House Prices, and the Real Economy," Journal of Finance, American Finance Association, vol. 70(6), pages 2587-2634, December.
    4. Elliot Anenberg & Edward Kung, 2014. "Estimates of the Size and Source of Price Declines Due to Nearby Foreclosures," American Economic Review, American Economic Association, vol. 104(8), pages 2527-2551, August.
    5. Lynn M. Fisher & Lauren Lambie-Hanson & Paul Willen, 2015. "The Role of Proximity in Foreclosure Externalities: Evidence from Condominiums," American Economic Journal: Economic Policy, American Economic Association, vol. 7(1), pages 119-140, February.
    6. Charles Towe & Chad Lawley, 2013. "The Contagion Effect of Neighboring Foreclosures," American Economic Journal: Economic Policy, American Economic Association, vol. 5(2), pages 313-335, May.
    7. Federica Ciocchetta & Wanda Cornacchia & Roberto Felici & Michele Loberto, 2016. "Assessing financial stability risks from the real estate market in Italy," Questioni di Economia e Finanza (Occasional Papers) 323, Bank of Italy, Economic Research and International Relations Area.
    8. Kennedy, Peter E, 1981. "Estimation with Correctly Interpreted Dummy Variables in Semilogarithmic Equations [The Interpretation of Dummy Variables in Semilogarithmic Equations]," American Economic Review, American Economic Association, vol. 71(4), pages 801-801, September.
    9. Hartley, Daniel, 2014. "The effect of foreclosures on nearby housing prices: Supply or dis-amenity?," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 108-117.
    10. Gerardi, Kristopher & Rosenblatt, Eric & Willen, Paul S. & Yao, Vincent, 2015. "Foreclosure externalities: New evidence," Journal of Urban Economics, Elsevier, vol. 87(C), pages 42-56.
    11. Foote, Christopher L. & Gerardi, Kristopher & Willen, Paul S., 2008. "Negative equity and foreclosure: Theory and evidence," Journal of Urban Economics, Elsevier, vol. 64(2), pages 234-245, September.
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    13. Lambie-Hanson, Lauren, 2015. "When does delinquency result in neglect? Mortgage distress and property maintenance," Journal of Urban Economics, Elsevier, vol. 90(C), pages 1-16.
    14. 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.
    15. Harding, John P. & Rosenblatt, Eric & Yao, Vincent W., 2012. "The foreclosure discount: Myth or reality?," Journal of Urban Economics, Elsevier, vol. 71(2), pages 204-218.
    16. John Y. Campbell & Stefano Giglio & Parag Pathak, 2011. "Forced Sales and House Prices," American Economic Review, American Economic Association, vol. 101(5), pages 2108-2131, August.
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    More about this item

    Keywords

    House prices; Foreclosures; Neighborhood effects;
    All these keywords.

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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