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The recent pervasive external effects of residential home foreclosure

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  • Robert W. Wassmer

Abstract

The United States faced an ongoing foreclosure crisis in the late 2000s. Federal and state governments responded with public policies designed to reduce foreclosures. Such policies are economically appropriate if the cost to implement them is less than the negative private and public external effects of mortgage foreclosure. A hedonic home price regression calculates the value of these external effects for a large United States area (Sacramento, CA) hit particularly hard by the crisis over the period between January 2008 and June 2009. The selling price of an average non-real estate owned homes, due to the presence of real estate owned sales of neighboring homes, fell by $48,827 or 31.9 percent. This estimate of the external neighborhood effect far exceeds similar estimates from previous regression studies using data from before the late 2000s foreclosure crisis and likely justifies public intervention into the curtailment of a regional foreclosure crisis of this magnitude.

Suggested Citation

  • Robert W. Wassmer, 2011. "The recent pervasive external effects of residential home foreclosure," Housing Policy Debate, Taylor & Francis Journals, vol. 21(2), pages 247-265, March.
    • Handle: RePEc:taf:houspd:v:21:y:2011:i:2:p:247-265
    DOI: 10.1080/10511482.2011.567290
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    References listed on IDEAS

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    1. William H. Rogers, 2010. "Declining foreclosure neighborhood effects over time," Housing Policy Debate, Taylor & Francis Journals, vol. 20(4), pages 687-706, September.
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    Cited by:

    1. Tammy Leonard & Nikhil Jha & Lei Zhang, 2017. "Neighborhood price externalities of foreclosure rehabilitation: an examination of the Neighborhood Stabilization Program," Empirical Economics, Springer, vol. 52(3), pages 955-975, May.
    2. Lei Zhang & Tammy Leonard & James C. Murdoch, 2016. "Time and distance heterogeneity in the neighborhood spillover effects of foreclosed properties," Housing Studies, Taylor & Francis Journals, vol. 31(2), pages 133-148, March.
    3. Suzuki, Masatomo & Hino, Kimihiro & Muto, Sachio, 2022. "Negative externalities of long-term vacant homes: Evidence from Japan," Journal of Housing Economics, Elsevier, vol. 57(C).
    4. Johnson, Michael P. & Solak, Senay & Drew, Rachel Bogardus & Keisler, Jeffrey, 2013. "Property value impacts of foreclosed housing acquisitions under uncertainty," Socio-Economic Planning Sciences, Elsevier, vol. 47(4), pages 292-308.
    5. Matthew Hall & Kyle Crowder & Amy Spring, 2015. "Variations in Housing Foreclosures by Race and Place, 2005–2012," The ANNALS of the American Academy of Political and Social Science, , vol. 660(1), pages 217-237, July.
    6. Timothy Jones & Dean Gatzlaff & G. Stacy Sirmans, 2016. "Housing Market Dynamics: Disequilibrium, Mortgage Default, and Reverse Mortgages," The Journal of Real Estate Finance and Economics, Springer, vol. 53(3), pages 269-281, October.

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