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Do homeowners associations mitigate or aggravate negative spillovers from neighboring homeowner distress?


  • Cheung, Ron

    () (Oberlin College)

  • Cunningham, Chris

    () (Federal Reserve Bank of Atlanta)

  • Meltzer, Rachel

    () (the New School)


Experiences reveal that the monitoring costs of the foreclosure crisis may be nontrivial, and smaller governments may have more success at addressing potential negative externalities. One highly localized form of government is a homeowners association (HOA). HOAs could be well-suited for triaging foreclosures, as they may detect delinquencies and looming defaults through direct observation or missed dues. On the other hand, the reliance on dues may leave HOAs particularly vulnerable to members’ foreclosure. We examine how property prices respond to homeowner distress and foreclosure within HOA communities in Florida. We combine data sets of HOAs, sales and aggregate loan delinquency, and foreclosures from 2000 through 2008. We find properties in HOAs are relatively less affected by more distressed neighbor homes compared with non-HOA properties, but only when considering less severe delinquency rates. We also find that negative price effects from higher delinquency exposure rates are ameliorated for properties in larger and newer HOAs.

Suggested Citation

  • Cheung, Ron & Cunningham, Chris & Meltzer, Rachel, 2013. "Do homeowners associations mitigate or aggravate negative spillovers from neighboring homeowner distress?," FRB Atlanta Working Paper 2013-18, Federal Reserve Bank of Atlanta.
  • Handle: RePEc:fip:fedawp:2013-18

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    References listed on IDEAS

    1. Kristopher S. Gerardi & Eric Rosenblatt & Paul S. Willen & Vincent W. Yao, 2012. "Foreclosure externalities: some new evidence," Public Policy Discussion Paper 12-5, Federal Reserve Bank of Boston.
    2. Rachel Meltzer, 2013. "Do Homeowners Associations Affect Citywide Segregation? Evidence From Florida Municipalities," Housing Policy Debate, Taylor & Francis Journals, vol. 23(4), pages 688-713, October.
    3. 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.
    4. Ron Cheung & Rachel Meltzer, 2013. "Homeowners Associations And The Demand For Local Land Use Regulation," Journal of Regional Science, Wiley Blackwell, vol. 53(3), pages 511-534, August.
    5. Helsley, Robert W. & Strange, William C., 1998. "Private government," Journal of Public Economics, Elsevier, vol. 69(2), pages 281-304, June.
    6. Barbara Coyle McCabe & Jill Tao, 2006. "Private Governments and Private Services: Homeowners Associations in the City and Behind the Gate," Review of Policy Research, Policy Studies Organization, vol. 23(6), pages 1143-1157, November.
    7. Tammy Leonard & James Murdoch, 2009. "The neighborhood effects of foreclosure," Journal of Geographical Systems, Springer, vol. 11(4), pages 317-332, December.
    8. William H. Rogers & William Winter, 2009. "The Impact of Foreclosures on Neighboring Housing Sales," Journal of Real Estate Research, American Real Estate Society, vol. 31(4), pages 455-480.
    9. Schuetz, Jenny & Been, Vicki & Ellen, Ingrid Gould, 2008. "Neighborhood effects of concentrated mortgage foreclosures," Journal of Housing Economics, Elsevier, vol. 17(4), pages 306-319, December.
    10. Cheung, Ron, 2008. "The interaction between public and private governments: An empirical analysis," Journal of Urban Economics, Elsevier, vol. 63(3), pages 885-901, May.
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    12. 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.
    13. Tracy M. Gordon, 2003. "Crowd out or crowd in?: The effects of common interest developments on political participation in California," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 37(2), pages 203-233, May.
    14. Nasser Daneshvary & Terrence M. Clauretie, 2012. "Toxic Neighbors: Foreclosures And Short‐Sales Spillover Effects From The Current Housing‐Market Crash," Economic Inquiry, Western Economic Association International, vol. 50(1), pages 217-231, January.
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    Cited by:

    1. Fernando Ferreira & Joseph Gyourko, 2015. "A New Look at the U.S. Foreclosure Crisis: Panel Data Evidence of Prime and Subprime Borrowers from 1997 to 2012," NBER Working Papers 21261, National Bureau of Economic Research, Inc.
    2. Bostic, Raphael & Ellen, Ingrid Gould, 2014. "Introduction: Special issue on housing policy in the United States," Journal of Housing Economics, Elsevier, vol. 24(C), pages 1-3.

    More about this item


    associations; foreclosures; delinquency; house prices;

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • 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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