Fed: Foreclosures Have Little Influence on Prices of Nearby Homes

Despite conventional wisdom that foreclosed properties negatively impact the values of neighboring homes, a paper from the Federal Reserve Bank of Atlanta reported Aug. 6 that that isnít the case. In fact, itís the condition of the distressed property, and not its foreclosure status, that most impacts surrounding home values.  

According to the research, any negative effects that foreclosures have on nearby property values tend to peak before distressed properties even complete foreclosure ó and in those cases the study revealed reduced values of only 0.5 to 1 percent in most cases. And if the subject property is in good condition, adjacent homes may sell at even higher prices.
 
Federal Reserve Bank researchers studied housing information in 15 metropolitan areas with a focus on single-family homes. ďWe find that while properties in virtually all stages of distress have statistically significant, negative effects on nearby home values, the magnitudes are economically small, peak before the distressed properties completed the foreclosure process, and go to zero about a year after the bank sells the property to a new homeowner,Ē the report stated.
 
The duration of a foreclosure delinquency also is a factor in maintaining neighborhood prices. The report concluded that in order to maintain home values in a neighborhood affected by foreclosures, itís important to minimize the time foreclosed homes stay in serious delinquency and bank-owned status. The report noted that a faster foreclosure process is necessary, and that banks should be pressured to sell the properties quickly.

 Read the Fedís paper http://www.frbatlanta.org/documents/pubs/wp/wp1211.pdf