Foreclosure Externalities and Home Liquidity

41 Pages Posted: 2 Jun 2019

See all articles by Xun Bian

Xun Bian

University of North Texas

Raymond T. Brastow

Federal Reserve Banks - Quantitative Supervision & Research

Bennie D. Waller

Longwood University

Scott Wentland

Bureau of Economic Analysis (BEA)

Date Written: May 6, 2019

Abstract

We study the external impact of foreclosures, exploring how foreclosed properties affect the liquidity of nearby homes. Empirically, we find a foreclosure increases a nearby home’s time-on-market by approximately 30%, on average, which is primarily driven by a disamenity effect. There is evidence that this delay comes from surprises or information shocks to nearby sellers, as foreclosures that come on and/or leave the market after a nearby home’s listing date experience the largest adverse liquidity effects. However, when there is no surprise and a nearby foreclosure remains through the entire marketing period, sellers discount list prices more steeply, effectively counteracting these liquidity effects. More generally, the results suggest that information, pricing, and expectations play key roles in how this externality is absorbed by the real estate market.

Keywords: spatial externalities, foreclosure spillovers, residential real estate, time on market, liquidity, distressed homes, spatial hedonic models, neighborhood conditions, probability of sale

JEL Classification: R23, R10, R30

Suggested Citation

Bian, Xun and Brastow, Raymond T. and Waller, Bennie D. and Wentland, Scott, Foreclosure Externalities and Home Liquidity (May 6, 2019). Available at SSRN: https://ssrn.com/abstract=3386230 or http://dx.doi.org/10.2139/ssrn.3386230

Xun Bian

University of North Texas ( email )

G. Brint Ryan College of Business
1155 Union Circle #311160
Denton, TX 76203
United States
(940) 369-8309 (Phone)

Raymond T. Brastow

Federal Reserve Banks - Quantitative Supervision & Research ( email )

United States

Bennie D. Waller

Longwood University ( email )

201 High Street
Farmville, VA 23909
United States
434-395-2046 (Phone)
434-395-2203 (Fax)

HOME PAGE: http://www.benniewaller.com

Scott Wentland (Contact Author)

Bureau of Economic Analysis (BEA) ( email )

1441 L Street NW
Washington, DC 20910
United States

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