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The impact of vacant, tax-delinquent, and foreclosed property on sales prices of neighboring homes

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  • Stephan Whitaker
  • Thomas J. Fitzpatrick

Abstract

In this empirical analysis, we estimate the impact of vacancy, neglect associated with property-tax delinquency, and foreclosures on the value of neighboring homes using parcel-level observations. Numerous studies have estimated the impact of foreclosures on neighboring properties, and these papers theorize that the foreclosure impact works partially through creating vacant and neglected homes. To our knowledge, this is only the second attempt to estimate the impact of vacancy itself and the first to estimate the impact of tax-delinquent properties on neighboring home sales. We link vacancy observations from Postal Service data with property-tax delinquency and sales data from Cuyahoga County (the county encompassing Cleveland, Ohio). We estimate hedonic price models with corrections for spatial autocorrelation. We find that an additional property within 500 feet that is vacant, delinquent, or both reduces the home’s selling price by at least 1.3 percent. In low-poverty areas, tax-current foreclosed homes have large negative impacts of 4.6 percent. In high-poverty areas, we observe positive correlations of sale prices with tax-current foreclosures and negative correlations with tax-delinquent foreclosures. This may reflect selective foreclosing on better-maintained properties or better maintenance by tax-paying foreclosure auction winners. The marginal medium-poverty census tracts display the largest negative responses to vacancy and delinquency in nearby nonforeclosed homes.

Suggested Citation

  • Stephan Whitaker & Thomas J. Fitzpatrick, 2012. "The impact of vacant, tax-delinquent, and foreclosed property on sales prices of neighboring homes," Working Paper 1123, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwp:1123
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    References listed on IDEAS

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    1. Robert A. Simons & Roberto G. Quercia & Ivan Maric, 1998. "The Value Impact of New Residential Construction and Neighborhood Disinvestment on Residential Sales Price," Journal of Real Estate Research, American Real Estate Society, vol. 15(2), pages 147-162.
    2. David M. Drukker & Hua Peng & Ingmar Prucha & Rafal Raciborski, 2013. "Creating and managing spatial-weighting matrices with the spmat command," Stata Journal, StataCorp LP, vol. 13(2), pages 242-286, June.
    3. 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.
    4. 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.
    5. David M. Drukker & Ingmar Prucha & Rafal Raciborski, 2013. "Maximum likelihood and generalized spatial two-stage least-squares estimators for a spatial-autoregressive model with spatial-autoregressive disturbances," Stata Journal, StataCorp LP, vol. 13(2), pages 221-241, June.
    6. Stephan Whitaker, 2011. "Foreclosure-related vacancy rates," Economic Commentary, Federal Reserve Bank of Cleveland, issue July.
    7. Edward L. Glaeser & Joseph Gyourko, 2005. "Urban Decline and Durable Housing," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 345-375, April.
    8. Downes, Thomas A. & Zabel, Jeffrey E., 2002. "The impact of school characteristics on house prices: Chicago 1987-1991," Journal of Urban Economics, Elsevier, vol. 52(1), pages 1-25, July.
    9. White, Michelle J., 1986. "Property taxes and urban housing abandonment," Journal of Urban Economics, Elsevier, vol. 20(3), pages 312-330, November.
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    Citations

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    Cited by:

    1. 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.
    2. Chan, Sewin & Gedal, Michael & Been, Vicki & Haughwout, Andrew, 2013. "The role of neighborhood characteristics in mortgage default risk: Evidence from New York City," Journal of Housing Economics, Elsevier, vol. 22(2), pages 100-118.
    3. Thomas J. Fitzpatrick & Lisa Nelson & Francisca Richter & Stephan Whitaker, 2012. "The effect of local housing ordinances," Working Paper 1240, Federal Reserve Bank of Cleveland, revised 01 Oct 2014.
    4. Stephan Whitaker & Thomas J. Fitzpatrick, 2012. "Land Bank 2.0: an empirical evaluation," Working Paper 1230, Federal Reserve Bank of Cleveland, revised 01 Sep 2014.
    5. Raymond, Elora, 2016. "Negative equity in the Sixth Federal Reserve District," FRB Atlanta Community and Economic Development Discussion Paper 2016-1, Federal Reserve Bank of Atlanta.
    6. 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.

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    Keywords

    Foreclosure ; Housing - Prices;

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