Biased Impact of Foreclosures on Housing Prices: Evidence from a Downward Spiraling Market
27 Pages Posted: 25 Oct 2012
Date Written: October 24, 2012
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: Suggested Citation