Intrametropolitan Patterns of Foreclosed Homes: ZIP-Code-Level Distributions of Real-Estate-Owned (REO) Properties during the U.S. Mortgage Crisis

During the mortgage crisis, community developers, policymakers, and others have become increasingly concerned about the extent to which lender-owned homes, often called real-estate-owned or “REO” properties, have accumulated in their neighborhoods and communities. REO properties are usually vacant and, especially when geographically concentrated, can have destabilizing impacts on neighborhoods and communities. However, due to data challenges, little systematic research has been done on the intrametropolitan distributions of such properties, especially across different metropolitan regions. This paper describes the accumulation of REO within different parts of metropolitan areas as of November 2008. First, the urban-versus-suburban distribution of REO is found to vary significantly across metropolitan areas. In general, in traditionally weak-market metros—many of which had substantial REO levels before the advent of the national mortgage crisis—REO tend to be relatively concentrated in central cities. Conversely, in regions where REO accumulated more recently and in those with high central-city housing prices, REO tend to be somewhat more suburbanized. Second, while ZIP codes with high REO densities are disproportionately located in central cities, this pattern varies significantly across metropolitan areas. In particular, in the formerly “hot-market” regions where home values have declined rapidly, a large majority of ZIP codes with “severe” REO levels are suburban. Finally, among suburban ZIP codes, those with long commute times experienced larger increases in REO over the November 2006 to 2008 period than those with shorter commute times. The paper concludes with some broad implications for community development policy and planning.