The Impact of Foreclosures on Neighboring Housing Sales

Abstract

Housing foreclosures likely have little neighborhood impact if there are few foreclosures in a neighborhood and the foreclosed housing can resell quickly. However, when there are many foreclosures along with a sluggish housing market, foreclosures can lead to neighborhood destabilization, which should cause house prices to further fall. This paper measures the impact of foreclosures on housing sales using a unique dataset from St. Louis County, Missouri. Results show an expected decline in the sales price of neighboring sales but the marginal impact of foreclosures seems to decline with an increase in the number of foreclosures. These results are robust to a variety of neighborhood control variables and spatial econometric techniques.

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