Skip to main content
SpringerLink
Log in

After the Boom: Transitory and Legacy Effects of Foreclosures

  • Published:
The Journal of Real Estate Finance and Economics Aims and scope Submit manuscript

This article has been updated

Abstract

Foreclosures lead to lower house prices in the short run. However, whether or not foreclosures also have long-run or legacy price effects has not been addressed extensively. Do neighborhoods with a greater number of past foreclosures exhibit long lasting house price discounts? This paper examines both transitory and legacy foreclosure price effects. We use almost 20 years of data from one of the epicenters of the foreclosure crisis: Orange County, Florida. We measure the number of recent and past foreclosures within narrowly defined neighborhoods for each house sold during 2016–2019:Q2. We compare transaction prices with different numbers of recent and past foreclosures, while controlling for differences in observed property characteristics and taking measures to reduce the impact of unobserved heterogeneity. We find that greater numbers of recent and past foreclosures are associated with lower house prices. We find strong transitory effects consistent with the existing literature. We also find significant but modest legacy effects on surrounding prices. These long-run discounts are about 0.41 percent to 0.79 percent in Orange County, Florida.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2

Similar content being viewed by others

Change history

  • 03 October 2022

    The original version of this paper was updated to fix the structuring of some references in the References section.

Notes

  1. Public tax records have several advantages (Ihlanfeldt and Mayock 2012). First, they provide information on the entire stock of existing properties, not just those that sell. Second, it includes all sales: open market sales and foreclosures.

  2. See Fla. Stat. 45.031.

  3. In our data for single family homes we have a total of 382,306 deeds over 2000-2019 (excluding administrative deeds or quit claims) of which 74 percent includes Warranty Deeds, 11 percent Certificate of Title, and 14 percent Special Warranty Deeds. Note that short sales are within the Warranty Deed transactions.

  4. At the peak of the crisis, properties in Orange County, Florida remained in foreclosure for 186 days (median for 2011). We therefore also experimented with a time window of 180 days for ST. The results are similar to those reported here, using a time window of 90 days.

  5. Homestead exemption for a given calendar year must be filed before March 1. See, https://www.ocpafl.org/exemptions/hx_file.aspx.

  6. We convert transaction prices into real transaction prices in the repeat sales models using the BLS CPI-u index.

  7. We have also replaced the measure of cumulative foreclosures before 2013 with the number of cumulative foreclosures up to 90 days before sale. The transitory effect and legacy effects remain unchanged.

  8. Note that the previous sale, \(P_{i t -1}\) , is not restricted to sales after 2015.

  9. Average homestead exemption for transacted units dropped from 62 to 45 percent in our sample from 2000 through 2019.

References

  • Aliprantis, D. (2017). Assessing the evidence on neighborhood effects from moving to opportunity. Empirical Economics, 52, 925–954.

    Article  Google Scholar 

  • Anenberg, E., & Kung, E. (2014). Estimates of the size and source of price declines due to nearby foreclosures. American Economic Review, 104(8), 2527–51.

    Article  Google Scholar 

  • Angrist, J. D., & Pischke, J.-S. (2008). Mostly harmless econometrics: An empiricist’s companion. Princeton University Press.

  • Biswas, A., Cunningham, C., Gerardi, K., & Sexton, D. (2021). Foreclosure externalities and vacant property registration ordinances. Journal of Urban Economics, 123, 103335.

    Article  Google Scholar 

  • Brueckner, J. K., & Rosenthal, S. S. (2009). Gentrification and neighborhood housing cycles: Will America’s future downtowns be rich?’. Review of Economics and Statistics, 91(4), 725–743.

    Article  Google Scholar 

  • Burnside, C., Eichenbaum, M., & Rebelo, S. (2016). Understanding booms and busts in housing markets. Journal of Political Economy, 124(4), 1088–1147.

    Article  Google Scholar 

  • Campbell, J. Y., Giglio, S., & Pathak, P. (2011). Forced sales and house prices. American Economic Review, 101(5), 2108–31.

    Article  Google Scholar 

  • Chinloy, P., Hardin, W., & Wu, Z. (2017). Foreclosure, reo, and market sales in residential real estate. The Journal of Real Estate Finance and Economics, 54(2), 188–215.

    Article  Google Scholar 

  • Coulson, N. E., & Wommer, G. (2019). Tenure tipping. Regional Science and Urban Economics, 77, 172–181.

    Article  Google Scholar 

  • Ellen, I. G., & O’Regan, K. (2010). Welcome to the neighborhood: how can regional science contribute to the study of neighborhoods? Journal of Regional Science, 50(1), 363–379.

    Article  Google Scholar 

  • Ferreira, F., Gyourko, J., & Tracy, J. (2010). Housing busts and household mobility. Journal of Urban Economics, 68(1), 34–45.

    Article  Google Scholar 

  • Fisher, L. M., Lambie-Hanson, L., & Willen, P. (2015). The role of proximity in foreclosure externalities: Evidence from condominiums. American Economic Journal: Economic Policy, 7(1), 119–40.

    Google Scholar 

  • Gabriel, S. A., & Rosenthal, S. S. (2015). The boom, the bust and the future of homeownership. Real Estate Economics, 43(2), 334–374.

    Article  Google Scholar 

  • Gerardi, K., Rosenblatt, E., Willen, P. S., & Yao, V. (2015). Foreclosure externalities: New evidence. Journal of Urban Economics, 87, 42–56.

    Article  Google Scholar 

  • Halket, J., Nesheim, L., & Oswald, F. (2020). The housing stock, housing prices, and user costs: the roles of location, structure and unobserved quality. International Economic Review, 61, 1777–1814.

    Article  Google Scholar 

  • Harding, J., Miceli, T. J., & Sirmans, C. (2000). Do owners take better care of their housing than renters? Real Estate Economics, 28(4), 663–681.

    Article  Google Scholar 

  • Harding, J. P., Rosenblatt, E., & Yao, V. W. (2009). The contagion effect of foreclosed properties. Journal of Urban Economics, 66(3), 164–178.

    Article  Google Scholar 

  • Harding, J. P., Rosenblatt, E., & Yao, V. W. (2012). The foreclosure discount: Myth or reality? Journal of Urban Economics, 71(2), 204–218.

    Article  Google Scholar 

  • Hartley, D. (2014). The effect of foreclosures on nearby housing prices: Supply or dis-amenity? Regional Science and Urban Economics, 49, 108–117.

    Article  Google Scholar 

  • Ihlanfeldt, K., & Mayock, T. (2012). Information, search, and house prices: Revisited. The Journal of Real Estate Finance and Economics, 44(1–2), 90–115.

    Article  Google Scholar 

  • Ihlanfeldt, K., & Mayock, T. (2016). The impact of reo sales on neighborhoods and their residents. The Journal of Real Estate Finance and Economics, 53(3), 282–324.

    Article  Google Scholar 

  • Ihlanfeldt, K., & Mayock, T. (2018). School segregation and the foreclosure crisis. Regional Science and Urban Economics, 68, 277–290.

    Article  Google Scholar 

  • Ihlanfeldt, K., Yang, C. (2021). Not in my neighborhood: The effects of single-family rentals on home values. Journal of Housing Economics, p. 101789.

  • Ioannides, Y. M. (2002). Residential neighborhood effects. Regional Science and Urban Economics, 32(2), 145–165.

    Article  Google Scholar 

  • Ioannides, Y.M. (2011). Neighborhood effects and housing, in Handbook of Social Economics, Vol. 1, Elsevier, pp. 1281–1340.

  • Iwata, S., & Yamaga, H. (2008). Rental externality, tenure security, and housing quality. Journal of Housing Economics, 17(3), 201–211.

    Article  Google Scholar 

  • Lin, Z., Rosenblatt, E., & Yao, V. W. (2009). Spillover effects of foreclosures on neighborhood property values. The Journal of Real Estate Finance and Economics, 38(4), 387–407.

    Article  Google Scholar 

  • Piskorski, T., & Seru, A. (2021). Debt relief and slow recovery: A decade after Lehman. Journal of Financial Economics, 141(3), 1036–1059.

    Article  Google Scholar 

  • Rosenthal, S.S. (2008). Old homes, externalities, and poor neighborhoods. a model of urban decline and renewal. Journal of Urban Economics, 63(3), 816–840.

  • Rosenthal, S. S. (2014). Are private markets and filtering a viable source of low-income housing? estimates from a repeat income model. American Economic Review, 104(2), 687–706.

    Article  Google Scholar 

  • Schuetz, J., Been, V., & Ellen, I. G. (2008). Neighborhood effects of concentrated mortgage foreclosures. Journal of Housing Economics, 17(4), 306–319.

    Article  Google Scholar 

  • Smith, B. C. (2004). Economic depreciation of residential real estate: Microlevel space and time analysis. Real Estate Economics, 32(1), 161–180.

    Article  Google Scholar 

  • Towe, C., & Lawley, C. (2013). The contagion effect of neighboring foreclosures. American Economic Journal: Economic Policy, 5(2), 313–35.

    Google Scholar 

  • Turnbull, G. K., & Zahirovic-Herbert, V. (2012). The transitory and legacy effects of the rental externality on house price and liquidity. The Journal of Real Estate Finance and Economics, 44(3), 275–297.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Finance, University of Central Florida, P.O. 161991, Orlando, FL, USA

    Geoffrey K. Turnbull

  2. Real Estate Centre, Department of Economic Geography, University of Groningen, Groningen, Netherlands

    Arno J. van der Vlist

Authors
  1. Geoffrey K. Turnbull
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Arno J. van der Vlist
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Arno J. van der Vlist.

Additional information

We would like to thank Denise Reyes in the Orange County, Florida, residential tax assessment office for data assistance. We are also grateful to Daniel Broxterman and Manish Bhatt for helpful discussions. Suggestions given by the Editor and two referees are much appreciated. The authors are responsible for any errors in the paper. We declare that we have no additional relevant or material financial interests that relate to the research reported here.

Appendix

Appendix

Table A1 Variable definitions
Full size table
Table A2 Principal Component Analysis of neighborhood characteristics
Full size table
Table A3 Repeat sample statistics
Full size table

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Turnbull, G.K., van der Vlist, A.J. After the Boom: Transitory and Legacy Effects of Foreclosures. J Real Estate Finan Econ 66, 422–442 (2023). https://doi.org/10.1007/s11146-021-09882-w

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11146-021-09882-w

Keywords

JEL classification:

Search

Navigation