The Impact of Default and Foreclosure on Housing Values: Rings Vs. Neighborhoods Approach
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We use neighborhood boundaries, in addition to a concentric rings approach, to examine single family foreclosure spillover effects on residential sales in Shelby County, TN for 2001–16. We find that using more homogeneous neighborhoods provides better and more consistent results as compared to results of using conventional concentric rings boundaries. Applying hedonic modeling, 2SLS, two-way clustered residual models to account for spatial, temporal and locational effects, we control for market cycles, property characteristics and fixed effects including date of sale. We find significant negative non-linear convex foreclosure rate impacts on sales prices given different locational, shape and demographic neighborhoods. Neighborhoods with high chronic foreclosure rates sustain substantially higher negative price impacts, while those with both lower acute or chronic foreclosure rates show lower price impacts.
KeywordsHousing values Mortgage default Foreclosure
We thank Gregory Mohler and Adam Alsamadisi for their help. We gratefully acknowledge the helpful comments from anonymous participants and referees at the American Real Estate Society (ARES) in San Diego 2014, Southern Financial Association in San Destin 2016, and The Journal of Real Estate Finance and Economics. All remaining errors are our own.
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