Louisville Properties Blog
Louisville Properties Blog

How Foreclosures Affect Home Prices

There is plenty of evidence here in the Louisville real estate market and elsewhere that foreclosures have a negative effect on home prices, but researchers at Harvard and MIT wanted to know precisely how much. They analyzed years of home sales data in Massachusetts and found that foreclosed homes sell for an average of 27 percent less than homes that have mortgages in good standing or are owned outright. They also looked at how a foreclosure affects the selling prices of nearby homes and found that a non-foreclosed home takes a one percent hit in selling price for each foreclosure within 250 feet. The higher the number of foreclosed homes on a block, the higher the negative, cumulative effects on sale prices of homes on the market. Daniel Hartley, an economist with the Federal Reserve Bank of Cleveland, recently used the Harvard and MIT study in a study of his own on how foreclosures affect neighborhoods. He calls foreclosures "disamenities' and notes that other factors shape the effect of foreclosures. He said: "In neighborhoods with low vacancy rates (tight markets), foreclosures lower the prices of nearby single-family houses by way of the supply effect. I estimate that housing prices within 250 feet of a foreclosure are lowered by about 1.6 percent per foreclosure through the supply effect, while the disamenity effect is about zero. In contrast, in neighborhoods with high vacancy rates ("looser" markets), foreclosures lower prices of nearby single-family houses by way of the disamenity effect. I estimate that housing prices within 250 feet of a foreclosure are lowered by about two percent per foreclosure through the disamenity effect, while the supply effect is about zero." We have stated many times that, while not immune to the effects of foreclosures, the Louisville real estate market has been spared the worst of the problems that are affecting many other housing markets across the country. This is good news for buyers, sellers, real estate professionals and most everyone in the area. Still more good news is that you don't have to buy a foreclosure to get a great deal on Louisville real estate right now. For the area's best selection of residential and commercial properties, call us today at 502.744.9504.
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