Home Foreclosures as Early Warning Indicator of Neighborhood Decline

Problem, research strategy, and findings: Ideally, planners would intervene in neighborhood processes before substantial forces of decline have gained momentum. Unfortunately, currently there is no guidance about which neighborhood indicators forecast future neighborhood changes. This study seeks a neighborhood early warning indicator that is readily available, frequently updated, and that predicts with substantial foresight and accuracy future changes in key aspects of neighborhood market processes and quality of life. We search over a range of neighborhood indicators for one or more that clearly lead others in a temporal sense, instead of lagging behind them. We employ Granger causality tests with indicators related to public safety, housing market, and economic activity that are based on data from Chicago neighborhoods between 1998 and 2009. Our key finding is that only one indicator analyzed, completed home foreclosures, systematically precedes other neighborhood indicators but does not systematically follow after them. All other indicators are enmeshed in complicated, often mutually causal temporal patterns, which render them inappropriate for forecasting. We conclude that completed home foreclosures is an appropriate early warning indicator of neighborhood decline in several dimensions. Takeaway for practice: Planners interested in identifying imminently emerging problems in their constituents' neighborhoods should regularly acquire and map data on home foreclosures as soon as they become available, and then undertake compensatory actions as quickly as feasible.