Foreclosure externalities: Some new evidence

Kristopher Gerardi, Eric Rosenblatt, Paul Willen and Vincent Yao

No 18353, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In a recent set of influential papers, researchers have argued that residential mortgage foreclosures reduce the sale prices of nearby properties. We revisit this issue using a more robust identification strategy combined with new data that contain information on the location of properties secured by seriously delinquent mortgages and information on the condition of foreclosed properties. We find that while properties in virtually all stages of distress have statistically significant, negative effects on nearby home values, the magnitudes are economically small, peak before the distressed properties complete the foreclosure process, and go to zero about a year after the bank sells the property to a new homeowner. The estimates are very sensitive to the condition of the distressed property, with a positive correlation existing between house price growth and foreclosed properties identified as being in "above average" condition. We argue that the most plausible explanation for these results is an externality resulting from reduced investment by owners of distressed property. Our analysis shows that policies that slow the transition from delinquency to foreclosure likely exacerbate the negative effect of mortgage distress on house prices.

JEL-codes: G12 R20 R30 (search for similar items in EconPapers)
Date: 2012-09
New Economics Papers: this item is included in nep-ure
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

Published as Journal of Urban Economics Volume 87, May 2015, Pages 42–56 Cover image Foreclosure externalities: New evidence ☆ Kristopher Gerardia, , , Eric Rosenblattb, , Paul S. Willenc, , Vincent Yaob,

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Working Paper: Foreclosure externalities: Some new evidence (2012)
Working Paper: Foreclosure externalities: some new evidence (2012)
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