Question about foreclosures and property values

[tangomonster]

Just curious. I've read several places that a home in the process of fore closure brings down the property values of surrounding homes. TIME magazine quoted a Georgia Tech study that said a home loses 1% of its value for every foreclosure within 1/8 of a mile. Is it because a home that's being foreclosed is likely to be sold under market value, thus depressing the prices of the surrounding homes?

 

[brewer12345]

Maybe part of it is, but I suspect that a bigger part is 2 things:

1) more stuff for sale by motivated sellers
2) foreclosed homes are usually poorly maintained (at best). Wanna buy next door to a place with the windows and doors boarded up? Not me.

 

[tangomonster]

Brewer, I'm not sure it's just the increased supply of homes, because experts act as though just one in a neighborhood, even if others aren't for sale, will depress the value. And I'm not sure that all foreclosed homes are rundown. In metro Atlanta, there are some very pricey homes that went into foreclosure and which seem to have been kept up, at least what I can see on the outside. I think it's something else, but can't put my finger on it. The stigma of foreclosure, perhaps?

 

[brewer12345]

And I'm not sure that all foreclosed homes are rundown. In metro Atlanta, there are some very pricey homes that went into foreclosure and which seem to have been kept up, at least what I can see on the outside.

Hmmmm. In my immediate hood, one of the priciest homes is a foreclosure property (flip gone bad). The idiots who lost the house put megabucks into sprucing it up, and it is right on the lake (complete with deck overlooking the water). But it hasn't been lived in in something like a year and even a casual outside look shows it.

 

[jazz4cash]

sounds like data-mining to me

 

[GatorBuzz]

Without having the study or the article in TIME, it's too to know exactly what they're saying. This could simply be a correlation finding rather than a causal one. You have a link? This is interesting to me.

Thanks.

 

[tangomonster]

GatorBuzz, here's a presentation the professor/foreclosure expert gave to Congress. As far as I can tell, it didn't explain why foreclosed properties affect others...

Testimony of Dan Immergluck, PhD Associate Professor City and Regional Planning Program Georgia Institute of Technology

 

[maddythebeagle]

Maybe some of you more experienced shoppers will have an opinion, but the one foreclosure that we looked at werent really any value considering the kitchen had been gutted and there wasnt a back door....I think Brewer has the right idea on the blight...

 

[haha]

GatorBuzz, here's a presentation the professor/foreclosure expert gave to Congress. As far as I can tell, it didn't explain why foreclosed properties affect others...

Testimony of Dan Immergluck, PhD Associate Professor City and Regional Planning Program Georgia Institute of Technology

Very interesting article. After reading it, although there is much to like, I doubt that he can actually control for factors other than foreclosure rate in determining effects on neighborhood home values, as he says that he has done. It seems more likely that foreclosures correlate to many other factors, like prevalence of predatory lending, that would tend to hurt property values on the down slope. Indeed, he presents evidence that concentration of ARM lending in a neighborhood makes housing prices more volatile. It's not heard to see why this might be true!

As he points out, there is a pattern of correlations involving type of lender, type of product, type of borrower, ethnic composition of neighborhood, etc.

One thing highlighted here and made clear by recent housing problems is that our financial institutions and procedures are not being subjected to the degree of oversight and regulation that is necessary considering their complexity and the degree of entrepreneurial zeal involved in these markets. Milton Friedman may have done more harm to America than Al Queada ever will.

By avoiding regulation we encourage bubbles, bubble bursting and bailouts of the financial beneficiaries of the bubble by the taxpayer. This IMO goes back to our system of election finance. Financial groups- Private Equity, hedge funds, mortgage bankers, large banks, etc. are allowed to run roughshod in a manner highly destructive of the socio-economic well being and stability of our society. These people get fantastically rich, all the while "our" elected officials run interference for them, and cause the taxpayer to bail them out when things eventually go bad, as inevitably they must. Then the lackey politicians get passed to them the crumbs off these guys tables. Tips so to speak.

All it takes to keep this going is a stupid, distracted electorate, which we certainly have here in 21st century USA.

Here is a quote from Dr. Immergluck:

"...it is hard to argue that there is no role for government regulation in regulating practices and products that can do so much harm to entire communities."

Paging God-Do you think it might be about time for another flood?

Ha

 

[HFWR]

Paging God-Do you think it might be about time for another flood?

Ha

In the immortal words of Loudin Wainwright III (Hard Day On The Planet):

It’s business as usual; some things never change

It’s unfair, it’s tough, unkind and it’s strange

We don’t seem to learn; we can’t seem to stop

Maybe some explosions would close up the shop



You know, maybe that would be fine: we would be off the hook

We resolved all our problems, never mind what it took

And it all would be over, finito, the end

Until the survivers started up all over again...

 

[tryan]

In my immediate hood, one of the priciest homes is a foreclosure property (flip gone bad). The idiots who lost the house put megabucks into sprucing it up, and it is right on the lake (complete with deck overlooking the water). But it hasn't been lived in in something like a year and even a casual outside look shows it.

I'ld float a low ball offer out on that one ... never know what the seller is thinking after sitting on it for so long.

The other factor with foreclosed homes is vacancy. A vacant house sticks out like a leper ... once you see the "problem", you have ask "what's wrong with the neighborhood".

 

[Achiever51]

I'ld float a low ball offer out on that one ... never know what the seller is thinking after sitting on it for so long....

I agree with this tactic if you're in the market and have patience. Watched a house in my neighborhood sit on the market for the past year plus. The previous owner was transferred and tried to hang on to the old house and a new one in a much pricier locale. Saw that the price was reduced some about four or five months after the first listing...then nothing but a "for sale" sign month after month.

Last month I saw folks moving into the house and checked an internet site that gives details on local home sales. Turns out the new owners bought the house for 36% less than the reduced listing price! They got a heck of a buy!!