IDEAS home Printed from https://ideas.repec.org/a/aea/aejpol/v5y2013i2p313-35.html
   My bibliography  Save this article

The Contagion Effect of Neighboring Foreclosures

Author

Listed:
  • Charles Towe
  • Chad Lawley

Abstract

We examine the contagion effect of residential foreclosures and find strong evidence of a social interactions influence on default decisions where the interaction is based on neighbors? behavior in a previous period. Using a unique spatially explicit parcel-level dataset documenting residential foreclosures in Maryland for the years 2006-2009 and a highly localized neighborhood definition, based on 13 nearest neighbors, we find that a neighbor in foreclosure increases the hazard of additional defaults by 18 percent. This feedback effect goes beyond a temporary reduction in local house prices and implies a negative social multiplier effect of foreclosures. (JEL R23, R31)

Suggested Citation

  • 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.
  • Handle: RePEc:aea:aejpol:v:5:y:2013:i:2:p:313-35
    Note: DOI: 10.1257/pol.5.2.313
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/pol.5.2.313
    Download Restriction: no

    File URL: http://www.aeaweb.org/aej/pol/data/2011-0169_data.zip
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.

    References listed on IDEAS

    as
    1. Patrick Bajari & Chenghuan Sean Chu & Minjung Park, 2008. "An Empirical Model of Subprime Mortgage Default From 2000 to 2007," NBER Working Papers 14625, National Bureau of Economic Research, Inc.
    2. Gerardi Kristopher & Willen Paul, 2009. "Subprime Mortgages, Foreclosures, and Urban Neighborhoods," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(3), pages 1-37, March.
    3. 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.
    4. Marianne Bertrand & Erzo F. P. Luttmer & Sendhil Mullainathan, 2000. "Network Effects and Welfare Cultures," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 1019-1055.
    5. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Niu, Yi & Ding, Chengri, 2015. "Unemployment matters: Improved measures of labor market distress in mortgage default analysis," Regional Science and Urban Economics, Elsevier, vol. 52(C), pages 27-38.
    2. Alm, James & Hawley, Zackary & Lee, Jin Man & Miller, Joshua J., 2016. "Property tax delinquency and its spillover effects on nearby properties," Regional Science and Urban Economics, Elsevier, vol. 58(C), pages 71-77.
    3. Christa Brelsford & Caterina De Bacco, 2018. "Are `Water Smart Landscapes' Contagious? An epidemic approach on networks to study peer effects," Papers 1801.10516, arXiv.org.
    4. repec:eee:jfinin:v:30:y:2017:i:c:p:50-60 is not listed on IDEAS
    5. Justin Sirignano & Apaar Sadhwani & Kay Giesecke, 2016. "Deep Learning for Mortgage Risk," Papers 1607.02470, arXiv.org, revised Mar 2018.
    6. 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.
    7. William M. Doerner & Andrew V. Leventis, 2013. "Distressed Sales and the FHFA House Price Index," FHFA Staff Working Papers 13-01, Federal Housing Finance Agency.
    8. Rana, Ghulam Awais & Shea, Paul, 2015. "Estimating the causal relationship between foreclosures and unemployment during the great recession," Economics Letters, Elsevier, vol. 134(C), pages 90-93.
    9. repec:eee:enepol:v:113:y:2018:i:c:p:559-570 is not listed on IDEAS
    10. Brown, Martin & Schmitz, Jan & Zehnder, Christian, 2016. "Social Norms and Strategic Default," Working Papers on Finance 1608, University of St. Gallen, School of Finance, revised Jun 2017.
    11. James Alm & J. Sebastian Leguizamon, 2018. "The Housing Crisis, Foreclosures, and Local Tax Revenues," Working Papers 1803, Tulane University, Department of Economics.
    12. Cohen, Jeffrey P. & Coughlin, Cletus C. & Yao, Vincent W., 2016. "Sales of Distressed Residential Property: What Have We Learned from Recent Research?," Review, Federal Reserve Bank of St. Louis, vol. 98(3), pages 159-188.

    More about this item

    JEL classification:

    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

    Lists

    This item is featured on the following reading lists or Wikipedia pages:
    1. The Contagion Effect of Neighboring Foreclosures (AEJ:EP 2013) in ReplicationWiki

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aejpol:v:5:y:2013:i:2:p:313-35. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael P. Albert). General contact details of provider: http://edirc.repec.org/data/aeaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.