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TOXIC NEIGHBORS: FORECLOSURES AND SHORT‐SALES SPILLOVER EFFECTS FROM THE CURRENT HOUSING‐MARKET CRASH
Author(s) -
DANESHVARY NASSER,
CLAURETIE TERRENCE M.
Publication year - 2012
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.2011.00380.x
Subject(s) - spillover effect , economics , foreclosure , monetary economics , crash , hoarding (animal behavior) , econometrics , microeconomics , finance , ecology , foraging , computer science , biology , programming language
Do home foreclosures and short sales equally affect neighbors? On average, no‐default homes sell anytime up to 6 months after sales of foreclosed neighbors suffer a cumulative spillover effect of about 10%. Including the market trend, the total effect increases to 40%. Controlling for foreclosure effects, short sales do not produce additional spillover effects. We apply a modified hedonic model to estimate spillover effects on neighbors, using January 2008 to June 2009 home transactions from one of the most impacted housing markets. Our findings apply to severely “thin” markets and may not be true for stable markets. We show that accurate estimates of spillover effects require correcting for the market trend, two types of time and spatial price interdependence, and the endogenous neighborhood price. ( JEL R21, R22, R31, K2)