The Spillover Effects of Foreclosures

Making the News

Here’s an eye-catching statistic: “Foreclosures cost neighbors 223 billion dollars.” This statistic comes from a study just released by the Center for Responsible Lending and its drawing a lot of attention. In their study, they take an unprecedented look at the spillover effects of the recent explosion in foreclosures (2005-2006). They look specifically at the devaluation in property values that the neighbors of those properties are likely to incur and the losses to communities as a result of depreciating property tax bases.

The numbers coming out of the study are ominous. They cite that over 44 million homes in the United States will experience property devaluation as a result of foreclosures in their neighorhoods. Fourty-two counties in the United States can expect to see their property tax base erode by more than $1 billion. And households located in proximity to lost properties could see the value of their property decrease by $5,000, on average.

What parts of the country will get hardest hit?

To examine this, the county level statistics statistics in the Center for Responsible Lending study were geocoded and the hotspots mapped. It should be noted that while their analysis is based on census tract data, the numbers presented in their report are at the county and state level. Further, they provide statistics for only those counties contained in Metropolitan Statistical Areas (MSAs). A full description of the data and the methodology they employ can be found here on their website.

The map below shows which parts of the country could see large property devaluations and tax base erosion as a result of foreclosure spillovers. The top ten counties ranked in order are: Los Angeles, Ca; Cook County, Il; Kings, NY; Miami-Dade, FL; Queens, NY; Orange, CA; Bronx, NY; Broward, FL; Maricopa, AZ; and New York, NY. Los Angeles county clearly dominates: It’s total devaluation is nearly double that of the second ranked Cook county.

Pan around the map to see the other hotspots, in the Chicago area, the northeast and Florida.

Total Property Devaluation from Foreclosure Spillover Effects

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If you are a homeowner, you don’t want to live in the following counties: Kings; NY, Hudson, NY; Queens, NY; Miami-Dade, FL; Bronx, NY; Los Angeles, CA; Manassas Park, VA; Passaic, NJ; New York, NY; and Prince Georges, MD. Those are are the top ten counties ranked by average property value loss per household affected by the spillovers. The map below shows a richer illustration of the geographic aspects of the problem.

Average Decrease in Property Value Per Household Affected

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A Slightly Different Look At Things

Where can a single foreclosure be expected to result in the largest impact on property values? To get at this, the study’s numbers on total property devaluation and houses lost due to foreclosures were used to create an index: property tax erosion per foreclosure.

The answer: New York, NY. On average, every foreclosure in this area can be expected to result in a 18.8 million dollar decline in the county’s tax base, due to spillover effects alone! The top ten counties, according to the index, are:

New York, NY ~ $18,824,604

Kings, NY ~ 3,189,975

San Francisco, CA ~ 2,806,025

Bronx, NY ~ 2,744,213

Queens, NY ~ 1,801,715

Hudson, NY ~ 1,459,685

Alexandria, VA ~ 1,362,766

District of Columbia, DC ~ 1,127,907

Arlington, VA ~ 1,106,435

Suffolk, MA ~ 1,040,268