Foreclosures, Returns, and Buyer Intentions

Using data from Stockholm, Sweden, it is examined if foreclosed properties are sold at a discount. This institutional setting differentiates from the U.S. and studies of REO properties. It is found that properties experience an eight times higher turnover subsequent to a foreclosure compared with the general market, indicating that professional buyers are taking advantage of a discount. That a substantial fraction of buyers are found to have bought more than one foreclosed property provides further support towards such a pattern. Holding period returns prior and subsequent of a foreclosure also supports a discount on price.