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The effect of foreclosures on nearby housing prices: supply or disamenity?

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  • Daniel Hartley

Abstract

A number of studies have measured the negative price effects of foreclosed residential properties on nearby property sales. However, only one study beside this one addresses the mechanism responsible for these effects. I measure separate effects for different types of foreclosed properties and use the estimates to decompose he effects of foreclosures on nearby home prices into two components. One component is due to the additional available housing supply and the other is due to a disamenity stemming from deferred maintenance or vacancy. I estimate that each extra unit of supply decreases prices within 0.05 miles by about 1.2% while the disamenity stemming from a foreclosed property is near zero.

Suggested Citation

  • Daniel Hartley, 2011. "The effect of foreclosures on nearby housing prices: supply or disamenity?," Working Papers (Old Series) 1011, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:1011
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    References listed on IDEAS

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    1. Kristopher 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. 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.
    3. 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.
    4. Ellen, Ingrid Gould & Lacoe, Johanna & Sharygin, Claudia Ayanna, 2013. "Do foreclosures cause crime?," Journal of Urban Economics, Elsevier, vol. 74(C), pages 59-70.
    5. 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.
    6. Wheaton, William C, 1990. "Vacancy, Search, and Prices in a Housing Market Matching Model," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1270-1292, December.
    7. Daniel Immergluck & Geoff Smith, 2005. "The impact of single-family mortgage foreclosures on neighborhood crime," Proceedings 955, Federal Reserve Bank of Chicago.
    8. 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.
    9. Leigh Linden & Jonah E. Rockoff, 2008. "Estimates of the Impact of Crime Risk on Property Values from Megan's Laws," American Economic Review, American Economic Association, vol. 98(3), pages 1103-1127, June.
    10. 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.
    11. 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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    Keywords

    Foreclosure; Housing - Prices;

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