Finally, some policy makers are waking up to the reality that foreclosures are catastrophic events for communities. Finally, after gifting billions of dollars to the banks (thanks taxpayers), someone is waking up and realizing that they should not be permitted to continue with their mad march toward foreclosure. The banks are not free market enterprises that may be allowed to make their own decisions….that horse left the stall long, long ago and especially when they all became effectively federalized through receipt of taxpayer funds. And now for the story:
The national foreclosure crisis has caused there to be millions more vacancies in our housing stock than before. Vacant homes lower their community’s property values and quality of life. Neighbors and public officials know foreclosed homes sit empty for months, but precise measures of foreclosure-related vacancy are rare. Using data from Cuyahoga County, Ohio, I trace the rise and fall in the vacancy rates of homes during the 18 months following their foreclosure. Ominously, the data suggest that foreclosure may permanently scar some homes. Foreclosed homes still have higher vacancy rates than neighboring houses two to five years after a sheriff’s sale.
Policy Implications
As the analysis here illustrates, homes that have been through a sheriff’s sale have very high vacancy rates for a year and a half afterward. The data strongly suggest that foreclosures leave long-lasting scars on some homes, where the foreclosure gap persists for years after the auction, even when the comparison is limited to homes in similar areas.
Given the literature that links foreclosure and vacancy to lowered property values, policymakers may want to address the process in at least two ways. First, keeping homes out of foreclosure would avoid creating REO and other vacancies that seem to linger among previously foreclosed homes.
Second, for homes that must go through foreclosure, any incentives or changes in administrative procedure that could shorten the time in REO would be helpful. As long as a home in REO status sits vacant, it diminishes the sales prices of all nearby homes on the market. The shorter this time is, the fewer homes will be affected.
However, as with all complex issues, policymakers need to be mindful of unintended consequences. For example, forcing banks to decrease the length of foreclosed homes’ time on the market could cause banks to lower sales prices, making the problem worse.
