Study finds foreclosures harm home prices more than vacancies
Occupied properties in foreclosure drag down the prices of sales of nearby homes twice as much as vacant properties, according to the Federal Reserve Bank of Cleveland.
Researchers looked at data from 9,601 sales in Cuyahoga County between April 1, 2010, and March 31, excluding sales not done at arms length and acquisitions by county and city land banks.
Homes sold with at least one vacancy within 500 feet priced 0.8% lower. Sale prices on those homes with a delinquent homeowner within the same radius dropped 0.7%.
But an occupied, tax-current home that recently entered foreclosure lowered the sales price by 1.8%, according to the Cleveland Fed's white paper.
"The impacts of homes with multiple indicators of distress are larger than the impacts of homes that are only vacant, delinquent or recently foreclosed," the researchers said in the report.
If a borrower abandoned the property while he was delinquent, sales within 500 feet suffered a 3.1% drop in prices. But a vacant home also in foreclosure — further down the distressed pipeline — lowered nearby home sale prices by 7.1%.
Homes that are tax delinquent, vacant and foreclosed have the largest impact on home sale prices within 500 feet, at 9.6%.
The findings of occupied foreclosures hurting prices more than vacant homes spotlights the underwhelming performance of private and public programs to assist homeowners before foreclosure and the need to more strongly enforce improvements in these initiatives.
According to Hope Now, foreclosure starts rose 18% in August to 218,000, compared to 56,000 private modifications and the 25,400 permanent workouts through the federal Home Affordable Modification Program that same month.
The Obama administration is working on plans to address both homeowners in danger of foreclosure and the inventory of already repossessed homes. One involves tweaking the Home Affordable Refinance Program to help more underwater borrowers take advantage of today's lower rates. The details are expected in the coming weeks.
Write to Jon Prior.
Follow him on Twitter @jonaprior.
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