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

Jeffrey Cohen, Cletus Coughlin and Vincent Yao

Review, 2016, vol. 98, issue 3, 159-88

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-codes: R31 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://dx.doi.org/10.20955/r.2016.159-188 https://dx.doi.org/10.20955/r.2016.159-188 (application/pdf)
https://files.stlouisfed.org/files/htdocs/publicat ... -recent-research.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlrv:00060

DOI: 10.20955/r.2016.159-188

Access Statistics for this article

Review is currently edited by Juan M. Sanchez

More articles in Review from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Scott St. Louis ().