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The Contagion Effect of Foreclosed Properties


John P. Harding


University of Connecticut - School of Business - Center for Real Estate and Urban Economic Studies

Eric Rosenblatt


Federal National Mortgage Association (Fannie Mae) - Research

Vincent W. Yao


American University

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

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Date posted: July 17, 2008 ; Last revised: September 17, 2010

Suggested Citation

Harding, John P. and Rosenblatt, Eric and Yao, Vincent W., The Contagion Effect of Foreclosed Properties (July 28, 2008). Journal of Urban Economics, Vol. 66, No. 3, pp. 164-178. Available at SSRN: http://ssrn.com/abstract=1160354

Contact Information

John P. Harding (Contact Author)
University of Connecticut - School of Business - Center for Real Estate and Urban Economic Studies ( email )
2100 Hillside Road
Unit 1041RE
Storrs, CT 06269-2041
United States
860-486-3227 (Phone)
860-486-0349 (Fax)
Eric Rosenblatt
Federal National Mortgage Association (Fannie Mae) - Research ( email )
16517 Keats Terrace
Derwood, MD 20855
United States
Vincent W. Yao
American University ( email )
4400 Massachusetts Ave, NW
Washington, DC 20016
United States
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