During the past few years, properties located next to foreclosures lost an estimated $1.95 trillion in value, according to the Center for Responsible Lending.
The group analyzed data from the U.S. Census, Lender Processing Services and the Mortgage Bankers Association’s National Delinquency Study and discovered it’s not just foreclosed homeowners who lost their personal wealth. Their neighbors also are struggling after having their home equity investments stripped by falling property values.
CRL says the loss impacts neighboring homes causing families near foreclosures to lose as much as $21,077 in household wealth, or 7.2% of their home’s value. In minority neighborhoods, the loss is even more severe with that segment of the housing market accounting for $1 trillion in lost home equity due to the spillover effects of neighboring foreclosures.
Families in minority neighborhoods are expected to lose as much as $37,084, or 13.1% of their home’s value due to neighboring foreclosure activity.
The report does not include losses in tax revenue and upkeep costs that will eventually be carried by local municipalities, CRL said.
The $2 trillion in losses is a dire number when considering a report out of the Federal Reserve Bank of St. Louis already estimates the existence of a $4 trillion negative equity hole in the U.S. housing market. The report, which was released by economist William Emmons, suggested it would take $3.7 trillion to get homeowners with mortgage debt back to their preferred loan-to-value ratio levels.
