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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
affiliation not provided to SSRN



Journal of Urban Economics, Forthcoming

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.

Keywords: Foreclosure, Contagion

JEL Classifications: G12, G21, R31

Accepted Paper Series

Date posted: July 17, 2008 ; Last revised: July 28, 2009

Suggested Citation

Harding, John P., Rosenblatt, Eric and Yao, Vincent W., The Contagion Effect of Foreclosed Properties (July 28, 2008). Journal of Urban Economics, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1160354


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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
affiliation not provided to SSRN
No Address Available
Feedback to SSRN (Beta)


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