Foreclosure Fallout Landing On Neighboring Homes
Foreclosures don’t just cost homeowners their homes — as if that wasn’t bad enough — they also depress nearby home values and rob the tax base for as long as two years.
The Center For Responsible Lending (CRL), which reported that more than 2 million households will face foreclosure due to risky loans, now says the story doesn’t stop there.
CRL’s latest report says for each of the millions of foreclosures on home loans originated in 2005 and 2006, the home values of more than 22 homes will suffer.
The study comes on the heels of a RealtyTimes.Com report “Foreclosures Undercutting Social Benefits of Homeownership” which reveals an increase in social turmoil due to foreclosures.
Studies have long associated homeownership with reduced crime, better educated kids, higher incomes, less reliance upon welfare, more politically active residents and even reduced teen pregnancy, among other benefits.
It’s not surprising then that the positive effects of homeownership are vanishing with growing declines in homeownership, especially where there are concentrations of lost homes.
The CRL study, which focuses on some of the financials cost of foreclosures says:
• 44.5 million neighboring homes will experience devaluation because of subprime foreclosures that take place nearby.
• The total decline in house values and tax base from nearby foreclosures will be $223 billion.
• Homeowners living near foreclosed properties will see their property values decrease $5,000 on average.
The center based its findings on research that says a single foreclosure decreases nearby home values by an average 0.9 percent, but additional foreclosures have a cumulative effect. Each additional foreclosure on the same block strips home values by an additional 0.9 percent. And the impact is higher in lower-income neighborhoods, where a foreclosure reduces nearby home values by 1.44 percent.
Despite economic forecasts that insist the housing market’s woes haven’t or won’t impact the general economy, CRL’s report isn’t the first to reveal economic fallout will indeed occur.
The dollar cost to neighboring property owners and local governments includes the economic impact as well as the cost of social degradation stemming from lost social services, under-funded education, and increased crime, among other social factors.
Property tax revenues, bolstered by homeownership, help provide city services, but foreclosed properties shrink city and regional tax revenues, making it harder to provide good schools, police protection, code enforcement and other services.
Without breaking out the data by race, CRL says the foreclosure spillover effect will hit African American and Latino communities harder, since these communities receive a disproportionate share of subprime home loans, the CRL report says.
CRL says, in general, 24 states and 42 counties will bear the brunt of foreclosure spillover, experiencing declines of more than $1 billion each in local house prices and tax bases.
States hit hardest will be California, New York, Florida, Illinois, New Jersey, Maryland, Arizona, Massachusetts, Virginia, and Pennsylvania. Counties to be hit hardest will include Los Angeles County, CA; Cook County, IL; Kings County, NY; Miami-Dade County, FL; Queens, NY; Orange County, CA; Bronx County, NY; Broward County, FL; Maricopa County, AZ and New York, NY.
by Broderick Perkins
