Foreclosures have a direct and immediate influence on the families that go through them. Apart from needing to pick up and leave their homes, these borrowers are plagued with poor credit scores for several years. The personal impact is so severe that the impacts on the house’s worth, the area’s value and neighborhood livability are occasionally overlooked.
Historical foreclosure rates from the Federal Deposit Insurance Corporation (FDIC) reveal an overall long-term upwards trend from as low as .04 percent of US residential properties in 1953,.3 percent from the early 1980s, just over 1 per cent from 1998 to 1.3 percent in 2003–each of raises clearly occurring long before the housing recession that began in 2007. During the exact same time span, housing prices nearly quadrupled. An individual might conclude, then, that on a nationwide scale and over a long-term, foreclosure rates have not affected home rates.
One noteworthy factor about post-2006 foreclosure prices –which as a national average isn’t much greater than the rate preceding the downturn –is that they widely vary in different areas of the country. A 2009 study by University of Virginia Professor William Lucy concluded that most of the country’s foreclosures were concentrated in four states and the exact same four states accounted for 87 percent of the nation’s overall housing price decline. California alone, accounting for 10 percent of the nation’s housing units, had 34 percent of the nation’s foreclosures. There were also wide variations. Solano County, for instance, had 15 times the amount of foreclosures as San Francisco in late 2008. An individual might conclude from these figures that foreclosure rates and home price decline are related when considering the short-term and locally in areas with foreclosure prices far in excess of the national average.
A 2009 study undertaken by MIT and Harvard economists looked in the particular affects of foreclosures on home cost in the micro-level–by census tract. They concluded that a foreclosure decreases house prices by an average of 27 percent. In lower-income areas the effect is greater than the typical; in higher-income areas the effect is significantly less. The study also concluded foreclosures have a tendency to bring down prices of other homes for sale in near proximity, specifically that each foreclosure that occurs within 0.05 mile lowers the purchase price of a house by about 1 percent. The effects of a single foreclosure on your cube, subsequently, will be minor. The effect of many will be evident.
Cause and Impact
Foreclosures don’t occur in a vacuumcleaner. Job loss, divorce, illness, changes in loan payments and loss in home worth all play a role. A 1998 study by the FDIC concluded that the long-term rise in home leverage and private debt, along with a decrease in savings rate fueled in part by easy charge, results in families being not able to keep a home through the fiscal pressures of job loss, sickness, etc.. This would explain why the post-2006 unemployment rate closely parallels the rise in foreclosures of the exact same period but equally high unemployment rates of the early 1980s weren’t paralleled by foreclosure prices as high at that moment. Basically, the more challenging Americans get at saving and paying down debt, the more tightly the foreclosure rate will be connected with financial stressors like job loss. There’s less and less of a safety net for households to weather life expected storms.
Foreclosures influence more than cost. A 2010 FDIC study concluded foreclosures lead to an increase in crime due to the decrease in informal policing by residents. The authors estimate the price of foreclosure-related crime in over $17 billion.