Study finds foreclosures harm home prices more than vacancies

Occupied properties in foreclosure drag down the prices of sales of nearby homes twice as much as vacant properties, according to the Federal Reserve Bank of Cleveland.

Researchers looked at data from 9,601 sales in Cuyahoga County between April 1, 2010, and March 31, excluding sales not done at arms length and acquisitions by county and city land banks.

Homes sold with at least one vacancy within 500 feet priced 0.8% lower. Sale prices on those homes with a delinquent homeowner within the same radius dropped 0.7%.

But an occupied, tax-current home that recently entered foreclosure lowered the sales price by 1.8%, according to the Cleveland Fed’s white paper.

From the report…

The Impact of Vacant, Tax-Delinquent, and Foreclosed Property on

Sales Prices of Neighboring Homes
by Stephan Whitaker and Thomas J. Fitzpatrick IV

In this empirical analysis, we estimate the impact of vacancy, neglect associated with material property-tax delinquency, and foreclosures on the value of neighboring homes using parcel-level observations. Numerous studies have estimated the impact of foreclosures on neighboring properties, and these papers theorize that the foreclosure impact works partially through creating vacant and neglected homes. To our knowledge, this is only the second attempt to estimate the impact of vacancy itself and the fi rst to estimate the impact of tax-delinquent properties on neighboring home sales. We link vacancy observations from Postal Service data with property-tax delinquency and sales data from Cuyahoga County (the county encompassing Cleveland, OH). We estimate hedonic price models with corrections for spatial autocorrelation. Importantly, we fi nd that excluding tax delinquency and vacancy from this type of analysis signifi cantly overstates the impact foreclosure has on surrounding home values. We fi nd that an additional vacant or delinquent property within 500 feet of a home reduces the home’s selling price by approximately 0.7 percent. The negative impact of individual foreclosures is about 2 percent if the home is neither vacant nor delinquent. Foreclosed homes have a large negative impact on nearby property prices, a 7 percent to 8 percent reduction, if the home is tax delinquent or vacant in addition to being recently foreclosed. Homes that are tax delinquent, vacant, and foreclosed have the largest impact on home sale prices within 500 feet, at 9.6 percent.

Full report below…



The Impact of Vacant, Delinquent, And Foreclosed Property on Sales Prices of Neighboring Homes