FOR IMMEDIATE RELEASE
Contact: Geoff Smith, Project Director
New Woodstock Institute Research Illustrates Devastating Impact Foreclosures Have on Neighborhood Property Values
A new report by Woodstock Institute, There Goes the Neighborhood: The Effect of Single-Family Mortgage Foreclosures on Property Values, shows that foreclosures have a significant negative effect on neighborhood property values. Although foreclosures have long been considered a problem associates with FHA loan programs, recent research has shown that the explosion in foreclosures that began in the 1990s was primarily driven by the growth of high-risk, conventional subprime lending.
Any debate about the costs and benefits of subprime lending needs to include consideration of the impact that failed subprime loans have not just on the individual homeowner or lender, but on the community as a whole, says Geoff Smith, Project Director at Woodstock Institute and co-author of the report.
The report uses a unique database that combines data on the location of foreclosures with data on neighborhood and property characteristics for more than 9,600 single-family properties sold in the city of Chicago to measure that impact that nearby foreclosures have on property values. Even after controlling for more than 40 characteristics of properties and their respective neighborhoods, the study finds that foreclosures of conventional, single-family loans have a significant impact on nearby property values. The reports key findings show:
· Each foreclosure of a conventional mortgage within an eighth of a mile (essentially a city block) of a single-family home results a decline in property value between 0.9 and 1.136 percent. Less conservative estimates also show that each conventional foreclosure between an eighth and quarter of a mile leads to an additional 0.325 percent decline in single-family property values.
· For the years examined, this indicates an estimated cumulative city-wide loss in property value due to conventional foreclosures between $598 million and $1.39 billion. For the 3,750 conventional foreclosures in Chicago during this period, this is an average of between $159,000 and $371,000 cumulative lost property value per foreclosure. These estimates include only the effects of foreclosures on single-family property values and do not include the effects on the values of condominiums, larger multifamily rental properties, and commercial buildings.
· When isolating properties in low- and moderate-income neighborhoods, nearby foreclosures have an even larger negative effect on single-family property values. Estimates show property values declining by between 1.44 and 1.8 percent for each conventional foreclosure within one-eighth of a mile of a single-family property in a low- or moderate-income community. Given an average selling price of $111,002 for properties in low- and moderate-income census tracts, this amounts to an average loss of between $1,598 and $1,998 per foreclosure for every single-family property sold in a low- or moderate-income tract.
Policy makers need to consider the total costs of irresponsible subprime lending and the strong negative impact that these risky loans have on the economic, social, and emotional well being of neighborhoods and cities devastated by skyrocketing foreclosures, says Smith.
The full version of the report is available for download:
There Goes the Neighborhood: The Effect of Single-Family Mortgage Foreclosures on Property Values
Woodstock Institute, founded in 1973, is a nationally-recognized resource on credit and capital needs of low-income and minority communities. The Institute engages in applied research, policy development, and technical assistance to promote community economic development.