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The Contagion Effect of Foreclosed PropertiesJohn P. HardingUniversity of Connecticut - School of Business - Center for Real Estate and Urban Economic Studies Eric RosenblattFederal National Mortgage Association (Fannie Mae) - Research Vincent W. Yaoaffiliation not provided to SSRN July 28, 2008 Journal of Urban Economics, Vol. 66, No. 3, pp. 164-178 Abstract: Although previous research shows that prices of homes in neighborhoods with foreclosures are lower than those in neighborhoods without foreclosures, it remains unclear whether the lower prices are the result of a general decline in neighborhood values or whether foreclosures reduce the prices of nearby non-distressed sales through a contagion effect. We provide robust evidence of a contagion discount by simultaneously estimating the local price trend and the incremental price impact of nearby foreclosures. At its peak, the discount is roughly one percent per nearby foreclosed property. The discount diminishes rapidly as the distance to the distressed property increases. The contagion discount grows from the onset of distress through the foreclosure sale and then stabilizes. This pattern is consistent with the contagion effect being the visual externality associated with deferred maintenance and neglect.
Number of Pages in PDF File: 42 Keywords: Foreclosure, Contagion JEL Classification: G12, G21, R31 Accepted Paper SeriesDate posted: July 17, 2008 ; Last revised: September 17, 2010Suggested CitationContact Information
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