I recently read an article at the National Bureau of Economic Research (NBER) which attempted to link foreclosures and home values. The statistics cited in the article concluded that foreclosures are not affecting home values very much and that there are only a dozen or so states with enough foreclosures to induce price drops of 6 percent or more.
The article made it seem as if this was an insignificant number. I disagree that a 6 percent drop in prices in a dozen states due to foreclosures is insignificant, but, I do agree with the premise of the article to a degree – I was unable to find any real loss of value on the whole that was directly related to foreclosures.
I’m also always skeptical of “national” studies in which home values are cited because they are almost always off. As an example, I recently read an article in Forbes which ranked the most expensive ZIP codes around the country. I found the ZIP code here in Atlanta that was in the report to be off by about 30% according to my local MLS – I’m sure it’s more accurate than their numbers. With that in mind, I thought it might be worthwhile to look at a local level and see if I could determine if foreclosures are affecting local home values. I was unable to see that there was a discernable price drop, be it direct or indirect, of home values due to foreclosures.
The methodology I used was to take an area of Atlanta and looked at sales data quarter by quarter with and then without the foreclosures as a baseline from Q1 and Q2 of 2007 and 2008. There was no discernable difference in home values, but, there really weren’t enough closed foreclosures to make much of a difference anyway. That said, what I did find, did not support the idea that foreclosures are bringing down the rest of the neighborhood. So, the next thing that I did was Continue reading this post