Federal Reserve Confirms What Realtors Have Always Known: Foreclosures Depress Nearby Home Values

Well,it's official, foreclosures depress nearby property values. I was browsing the Federal Reserve websites and came across this white paper at the New York branch. It is titled, Estimating the Effect of Mortgage Foreclosures on Nearby Property Values: A Critical Review of the Literature. You can read it if you like; it's only 14 pages with bibliography, by clicking on the title.

It is an analysis of various studies on the impact of a foreclosures in a given area. My state of Michigan was acknowledged as experiencing "long-term economic decline" (you too Ohio!). But I jest.

photo: feargal m

At the heart of the review is that if your home is between 50 to 1,500 feet from a foreclosed property, you might experience a drop in your property value! How much that drop may be "depends". Depends on where the property is and how many other properties are foreclosed in the neighborhood to name a couple.

What I found interesting was the statement and I quote: "Remarkably, prior to the foreclosure crisis, there had been little economic research connecting the incidence of foreclosure to nearby property values." So I interpreted that to mean it is widely believed that foreclosures have a negative effect on surrounding property values but, until the data "bites us (the Fed) on the butt" we haven't acknowledged it.

Hey Realtors it's kinda nice to be ahead of the curve!