The Spatial Aspects of the Foreclosure Crisis: A Look at the New England Region

Abstract

Foreclosures are spatially contagious by nature (Can 1998). Abandoned or vacant properties have a negative spillover effect, by reducing the expected return on investment on surrounding properties. While there is a growing body of literature focusing on the latest wave of foreclosures in the US (Foote, Gerardi and Willen 2008b; Coulton et al. 2008; Lin et al. 2009), the spatial aspect has not been analyzed. We explore the spatial contagion of foreclosures, at the neighborhood level. Following an epidemiological concept, we define foreclosure contagion as an increase in neighborhood foreclosures that spreads over time from neighborhood to adjoining neighborhoods. In addition, we define foreclosure hotspots as areas with high values of foreclosures that are surrounded by areas with high foreclosure levels. The purpose is to identify the evolution of this spatial phenomenon by structure type (single units versus multi-units) and the socio-demographic characteristics of the neighborhoods affected by foreclosure. This research employs data from the Warren Group on nearly 15, 000 residential properties that entered the second stage of the foreclosure process during 2007 and the first quarter of 2008. The data cover four states: Connecticut, Massachusetts, New Hampshire, and Rhode Island. Our empirical evidence shows that the foreclosures in New England during this time period exhibited a spatial contagion pattern and that most troubled neighborhoods, the foreclosure hotspots, were “infecting” the adjacent neighborhoods. Any foreclosure mitigation program should include a spatial focus and target the foreclosures in the foreclosure hotspots.

Keywords: foreclosure, spatial association, contagion, residential structure, renters, New England