Biased Impact of Foreclosures on Housing Prices: Evidence from a Downward Spiraling Market

27 Pages Posted: 25 Oct 2012

See all articles by Craig A. Depken

Craig A. Depken

University of North Carolina at Charlotte - The Belk College of Business Administration - Department of Economics

Harris Hollans

Auburn University - College of Business

Steve Swidler

Lafayette College - Department of Economics & Business; Auburn University - College of Business

Date Written: October 24, 2012

Abstract

This paper contributes to the literature focusing on the impact of foreclosure status on single family house prices during a housing market collapse when foreclosures and distressed sales become the majority of recorded transactions. While it is generally possible to identify Real-estate owned (REO) transactions in publicly available data, other forms of distressed sales such as short sales are generally not identified. In a healthy market where both foreclosures and distressed sales are a small fraction of the transactions, omitting these observations from the analyzed sample likely introduces minor sample selection bias. However, when distressed sales become commonplace, failing to identify them introduces an omitted variable bias. We propose a matching methodology to create proxies for distressed and arms-length sales. We show that during the market collapse in Las Vegas (NV) from 2008q1 through 2011q2, the price impact associated with foreclosure status converged to that associated with distressed (short) sales.

Keywords: real estate, sample selection, short sales, flipping

JEL Classification: G11, G21, R31

Suggested Citation

Depken, Craig A. and Hollans, Harris and Swidler, Steve M., Biased Impact of Foreclosures on Housing Prices: Evidence from a Downward Spiraling Market (October 24, 2012). Available at SSRN: https://ssrn.com/abstract=2166610 or http://dx.doi.org/10.2139/ssrn.2166610

Craig A. Depken (Contact Author)

University of North Carolina at Charlotte - The Belk College of Business Administration - Department of Economics ( email )

Charlotte, NC 28223
United States

Harris Hollans

Auburn University - College of Business ( email )

Department of Finance
303 Lowder Business Bldg.
Auburn University, AL 36849
United States
(334) 844-3009 (Phone)
(334)844-4960 (Fax)

Steve M. Swidler

Lafayette College - Department of Economics & Business ( email )

Easton, PA 18042
United States
610-330-5303 (Phone)

Auburn University - College of Business ( email )

Auburn, AL 36849
United States

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