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The recent pervasive external effects of residential home foreclosure

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  • Robert W. Wassmer

Abstract

The United States faced an ongoing foreclosure crisis in the late 2000s. Federal and state governments responded with public policies designed to reduce foreclosures. Such policies are economically appropriate if the cost to implement them is less than the negative private and public external effects of mortgage foreclosure. A hedonic home price regression calculates the value of these external effects for a large United States area (Sacramento, CA) hit particularly hard by the crisis over the period between January 2008 and June 2009. The selling price of an average non-real estate owned homes, due to the presence of real estate owned sales of neighboring homes, fell by $48,827 or 31.9 percent. This estimate of the external neighborhood effect far exceeds similar estimates from previous regression studies using data from before the late 2000s foreclosure crisis and likely justifies public intervention into the curtailment of a regional foreclosure crisis of this magnitude.

Suggested Citation

  • Robert W. Wassmer, 2011. "The recent pervasive external effects of residential home foreclosure," Housing Policy Debate, Taylor & Francis Journals, vol. 21(2), pages 247-265, March.
  • Handle: RePEc:taf:houspd:v:21:y:2011:i:2:p:247-265 DOI: 10.1080/10511482.2011.567290
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    File URL: http://hdl.handle.net/10.1080/10511482.2011.567290
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    Cited by:

    1. Tammy Leonard & Nikhil Jha & Lei Zhang, 2017. "Neighborhood price externalities of foreclosure rehabilitation: an examination of the Neighborhood Stabilization Program," Empirical Economics, Springer, pages 955-975.
    2. Johnson, Michael P. & Solak, Senay & Drew, Rachel Bogardus & Keisler, Jeffrey, 2013. "Property value impacts of foreclosed housing acquisitions under uncertainty," Socio-Economic Planning Sciences, Elsevier, vol. 47(4), pages 292-308.
    3. Keith Ihlanfeldt & Tom Mayock, 2016. "The Impact of REO Sales on Neighborhoods and Their Residents," The Journal of Real Estate Finance and Economics, Springer, vol. 53(3), pages 282-324, October.
    4. Timothy Jones & Dean Gatzlaff & G. Stacy Sirmans, 2016. "Housing Market Dynamics: Disequilibrium, Mortgage Default, and Reverse Mortgages," The Journal of Real Estate Finance and Economics, Springer, vol. 53(3), pages 269-281, October.

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