By Kristin L. Perkins (Georgetown University)
Since the mid-2000s millions of Americans have had personal experiences with foreclosure. Both homeowners and renters were affected by the surge in foreclosures over the last decade and neighborhoods of all types nationwide were exposed to risky mortgage lending, foreclosure sales, and vacant properties. Many studies have shown that foreclosures have negative effects on individuals and neighborhoods. Much of this research has focused on the effects of foreclosures on sales prices of neighboring homes and on neighborhood conditions like crime and neglected and poorly maintained properties.
In our UAR article we examine the association between concentrated foreclosure activity and the risk of a property with a foreclosure filing (a financially-distressed property) being scheduled for foreclosure auction. Our data come from New York City and we follow financially-distressed properties from 2007 to 2009. The goal of our study is to determine how foreclosure activity in the neighborhood surrounding an individual property is associated with that property’s own risk of foreclosure. Is being in a neighborhood with more foreclosure activity associated with an individual property owner who is behind on his payments losing his home to foreclosure?
We answer this question with data about individual property and neighborhood characteristics in addition to foreclosure activity data. We find that neighborhood foreclosure activity is indeed associated with an individual property’s risk of foreclosure, but not in the way that most previous research has assumed. There are different phases in the foreclosure process – an early phase when the property owner has missed payments and a later phase when the property is scheduled for auction. Some properties that enter the early phase cure their delinquency and do not reach the later phase of being scheduled for auction. Our article shows that levels of neighborhood foreclosure activity in both phases are associated with an individual property’s outcome but in different ways. Holding constant individual property and neighborhood characteristics, being located in a neighborhood with a high number of foreclosure auctions is associated with a significantly higher probability of an individual financially-distressed property being scheduled for foreclosure auction. In contrast, the number of foreclosure filings in the neighborhood, that is, the number of nearby properties in the earlier phase in the foreclosure process, is associated with a lower probability of scheduled foreclosure auction for an individual financially-distressed property.
We conclude that researchers and policy makers who want to estimate the effect of foreclosure on individual property and neighborhood outcomes should pay close attention to the type of foreclosure activity they are measuring. Our findings suggest that researchers need to control for both types of foreclosure activity to accurately estimate effects of foreclosure. Furthermore, policy makers who design a foreclosure response program may get different results in a neighborhood with a high level of foreclosure filings but a low level of foreclosure auctions than they would see in a neighborhood with a high level of foreclosure auctions.
Kristin L. Perkins is an assistant professor in the Department of Sociology at Georgetown University.