Estimates of the Size and Source of Price Declines Due to Nearby Foreclosures

Abstract

Using a novel dataset which merges real estate listings with real estate transactions in San Francisco from 2007-2009, we present new evidence that foreclosures causally depress nearby home prices. We show that this decrease occurs only after the foreclosed home is listed for sale, which suggests that the effect is due to the additional housing supply created by foreclosure rather than from neglect of the foreclosed property. Consistent with a framework where a foreclosed home simply increases supply, we find that new listings of foreclosed homes and nonforeclosed homes each lower sales prices of homes within 0.1 miles of the listing by 1 percent. * We thank Leah Brooks, Karen Pence, Hui Shan, and seminar participants for helpful suggestions. We thank Lindsay Relihan for excellent research assistance, and Nate Howard, a real estate agent at Louise Beck Properties, who provided valuable insights into the residential real estate market and MLS data. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors.† Federal Reserve Board of Governors, Washington DC.

Foreclosures, House Prices, and the Real Economy

“…Estimates imply that a 10% increase in the number of homes on the market is associated with a four‐percentage‐point decline in house prices. This evidence is consistent with Hartley () and Anenberg and Kung (), who find that the supply effect dominates the dis‐amenity effect in most areas.…”

Foreclosure Contagion and the Neighborhood Spillover Effects of Mortgage Defaults

“…The estimates point to a sizable decrease in the sale price of transacted properties of around 1% to 4% after the sale. These estimates are comparable to those in prior research, such as Anenberg and Kung () or Campbell, Giglio, and Pathak (), who estimate a roughly 1% effect on price after differencing out price impacts on more distant geographies. Panel B estimates the effect of foreclosures on the repeat‐sale measure of prices, in which the dependent variable is now , where is the last transacted sale on the property.…”

“…My paper relates most strongly to existing studies on the local effects of foreclosures. Many of these papers examine the price impacts of foreclosures, including Harding, Rosenblatt, and Yao (), Campbell, Giglio, and Pathak (), Anenberg and Kung (), and Gerardi et al. ().…”

The effect of foreclosures on nearby housing prices: Supply or dis-amenity?

“…The other study that attempts to separate the supply and disamenity effect of foreclosures is Anenberg and Kung (2014). Anenberg and Kung (2014) look at the effect of foreclosures in multiple listing service (MLS) data on nearby asking prices for homes.…”

“…Anenberg and Kung (2014) look at the effect of foreclosures in multiple listing service (MLS) data on nearby asking prices for homes. They find that each additional foreclosure listed is associated with a 1.5% drop in sales price for homes within 0.1 miles.…”