Sales of Distressed Residential Property: What Have We Learned from Recent Research?

30 Pages Posted: 15 Sep 2016 Last revised: 17 Jul 2019

See all articles by Jeffrey Cohen

Jeffrey Cohen

University of Connecticut - School of Business

Cletus C. Coughlin

Federal Reserve Bank of St. Louis - Research Division

Vincent Yao

Georgia State University - J. Mack Robinson College of Business

Date Written: 2016

Abstract

During the housing bust many homeowners found themselves “underwater�—the amount they owed on their mortgages exceeded the value of the associated property—and they either could not or possibly chose not to stay current on their mortgage payments. As a consequence, sales of so-called distressed properties, often after a foreclosure, became commonplace. This spurred numerous research papers on various related issues. The authors’ review summarizes the research findings on three topics: the impact of changes in housing prices on foreclosures; the impact of foreclosure on the sales price of the foreclosed house; and the impact of foreclosure on the sales prices of nearby houses. Not surprisingly, declining housing prices are associated with increasing foreclosure rates; however, various other factors, such as a job loss or expected housing prices, can also play an important role. This review highlights various theoretical and econometric issues that have raised doubts about the accuracy of estimated price impacts of foreclosures and led to numerous refinements of the subsequent empirical analysis. Estimates of the own foreclosure discount generally range from near zero to 28 percent, with most estimates greater than 12 percent. Estimates of the discount resulting from spillover effects of nearby foreclosed houses are generally less than 2 percent and diminish rapidly with distance.

JEL Classification: R31

Suggested Citation

Cohen, Jeffrey and Coughlin, Cletus C. and Yao, Vincent, Sales of Distressed Residential Property: What Have We Learned from Recent Research? (2016). Review, Vol. 98, Issue 3, pp. 159-88, 2016. Available at SSRN: https://ssrn.com/abstract=2839192 or http://dx.doi.org/10.20955/r.2016.159-188

Jeffrey Cohen (Contact Author)

University of Connecticut - School of Business ( email )

368 Fairfield Road
Storrs, CT 06269-2041
United States

Cletus C. Coughlin

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States

Vincent Yao

Georgia State University - J. Mack Robinson College of Business ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

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