The external costs of foreclosure: The impact of single-family mortgage foreclosures on property values

To measure the impact of foreclosures on nearby property values, we use a database that combines data on 1997 and 1998 foreclosures with data on neighborhood characteristics and more than 9,600 single-family property transactions in Chicago in 1999. After controlling for some 40 characteristics of p...

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Bibliographic Details
Published in:Housing policy debate 2006-01, Vol.17 (1), p.57-79
Main Authors: Immergluck, Dan, Smith, Geoff
Format: Article
Language:English
Subjects:
Bankruptcy
Causal analysis
Community
Foreclosure
Foreclosures
Home ownership
Homeownership
Housing
Housing prices
Illinois
Measurement
Mortgages
Neighbourhoods
Price instability
Prices
Property
U.S.A
Valuation
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Summary:To measure the impact of foreclosures on nearby property values, we use a database that combines data on 1997 and 1998 foreclosures with data on neighborhood characteristics and more than 9,600 single-family property transactions in Chicago in 1999. After controlling for some 40 characteristics of properties and their respective neighborhoods, we find that foreclosures of conventional single-family (one- to four-unit) loans have a significant impact on nearby property values. Our most conservative estimates indicate that each conventional foreclosure within an eighth of a mile of a single-family home results in a decline of 0.9 percent in value. Cumulatively, this means that, for the entire city of Chicago, the 3,750 foreclosures that occurred in 1997 and 1998 are estimated to have reduced nearby property values by more than $598 million, for an average of $159,000 per foreclosure. This does not include effects on the value of condominiums, multifamily rental properties, and commercial buildings.
ISSN:1051-1482
2152-050X
DOI:10.1080/10511482.2006.9521561