Your home's value and the foreclosure mess
You don’t have to live near Dorchester’s notorious Hendry Street to feel the pain from the foreclosure epidemic.
Hendry Street became notorious locally a year or two ago as the epicenter of the foreclosure crisis in the Boston area, a foreclosure alley of boarded up triple-deckers.
But it can take just one foreclosure to spoil the party and bring down real estate values in your neighborhood. And if that hapless homeowner happens to be your next door neighbor, then you are really out of luck.
Those, anyway, are some of the findings on the impact of foreclosures on home values in a recent report by the Center for Responsible Lending. The Times takes an interesting look at the report, and in particular new research that puts some dollar figures on the impact this mess is having on homeowners around the country.
While the center’s report has always looked at the impact of foreclosures on home values, this year it incorporated new, neighborhood level research by the University of Connecticut.
Basically, if live within 300 feet of a foreclosure, you can expect the value of your home to fall 1.3 percent. Within 300 to 500 feet, and you are in for a drop of just over half a percent.
More than 69 million homes will see their values drop thanks to neighbors who have lost it all in foreclosures, the center finds.
Certainly interesting stats – I know I have the tendency to think of the foreclosure issue, at least around here, as one that is primarily killing low income neighborhoods. Rather, we are all paying for this mess.
Still, that’s great to know, but what to do about it is really the big question.
The Times article suggests, in what was likely an easy and mindless lede for the writer, that “being a nosy neighbor could well pay off.’’
Really? Just because someone sees a train wreck coming does not necessarily mean there’s much that can be done about it.
So what is the average homeowner supposed to do if his neighbor falls into foreclosure, throw a fundraiser?
Sounds like a grand idea. But given most of us are struggling to get by in this economy – and sadly don’t even know who are neighbors are - that seems unlikely.
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"Basically, if live within 300 feet of a foreclosure, you can expect the value of your home to fall 1.3 percent. Within 300 to 500 feet, and you are in for a drop of just over half a percent."
These numbers don't make sense. Half a percent? That's rounding error. So, if I live in a $400K home, and my neighbor loses his home to foreclosure and it sells for $250K, the value of my home is only going to drop by $5,200? I don't buy it.
I assume these numbers for a single foreclosure. What if you live within 300 feet of 10 foreclosures? There are neighborhoods in places like California that are essentially one giant foreclosure park. Surely those homes not in foreclosure have seen their value plunge.
I understand the argument for why distressed sales should not be considered “price comps” in a normal market. While purists will disagree with me on this point, the story makes sense since foreclosures usually represent such a small proportion of total sales. But when almost HALF the transactions are distressed (the current national number is 45% according to the NAR), it is misleading and disingenuous to exclude foreclosures when determining fair market value. In many areas, foreclosures ARE the market!
Unless we see hyperinflation (possible) or sweeping changes to the foreclosure process as a result of new regulation (also possible), the market will likely be dominated by distressed sales for several years. Non-distressed sellers will be forced to choose between accepting fire sale prices for their property or not selling at all. (For the naysayers out there, note that sellers in FL, NV, MI, CA, and AZ are already in this position). Obviously these price trends will be reflected in values for existing homeowners as well. The “paper wealth” which magically appeared during the bubble years will vanish.
The price declines we have seen so far are only the beginning. My advice to sellers: cut your price now and get out while you still can.
in my little '70's subdivision, over the past few years, only one house has been sold due to foreclosure. however, we do have one or two estate sales or divorce sales every year. the whole neighborhood is single family homes on 0.5 acres. believe me, when a sale comes in low, your home value plummets. it is a stable neighborhood, and a handful of houses changes hands every year -- those are the comps. two estate sales and an unethical appraiser last year and we lost our sale.
300 to 500 feet away? those are my neighbors!
This blogger might want to review your comment before posting it.
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