The Contagion Effect of Neighboring Foreclosures

Charles Towe () and Chad Lawley ()

American Economic Journal: Economic Policy, 2013, vol. 5, issue 2, 313-35

Abstract: We examine the contagion effect of residential foreclosures and find strong evidence of a social interactions influence on default decisions where the interaction is based on neighbors? behavior in a previous period. Using a unique spatially explicit parcel-level dataset documenting residential foreclosures in Maryland for the years 2006-2009 and a highly localized neighborhood definition, based on 13 nearest neighbors, we find that a neighbor in foreclosure increases the hazard of additional defaults by 18 percent. This feedback effect goes beyond a temporary reduction in local house prices and implies a negative social multiplier effect of foreclosures. (JEL R23, R31)

JEL-codes: R23 R31 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/pol.5.2.313
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Citations: View citations in EconPapers (46)

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