New Study Finds Property Condition Matters Most!

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Results from a recent study conducted by the Federal Reserve Bank of Atlanta suggest that the condition of a distressed property progressing through the foreclosure process weighs most heavily on home prices in the area, not the finality of foreclosure itself.   The negative effect on nearby home prices actually peaks before the distressed property even completes the foreclosure process.

After foreclosure, when a lender-owned property is in below-average condition, nearby houses will sell at lower prices; when it’s above average condition, nearby homes will sell at higher prices.

The study found that a property in serious delinquency for less than a year or a property foreclosed on and now owned by the bank reduces values of homes within a tenth of a mile by about 0.5% to 1%, “an amount that would most likely go unnoticed by the typical seller who does not have many distressed homeowners living nearby,” according to the report. Researchers analyzed housing information, including public records in 15 metropolitan areas, with a focus on single-family homes.

It’s assumed that the owners of the distressed properties aren’t making as much investment in their properties or are doing as much general upkeep as foreclosure looms. And that’s what’s impacting nearby prices.

“The most important take-away is the effect [on nearby home prices] starts when the property is delinquent. It’s not the foreclosure itself that is the problem,” said Paul S. Willen, an economist at the Federal Reserve Bank of Boston and co-author of the report, in an interview.

In order to minimize the effects that foreclosures have on the surrounding area, it’s best to minimize the time that a property spends in serious delinquency and in bank-owned status, the authors concluded. To do that means accelerating the foreclosure process and putting pressure on lenders to sell bank-owned properties more quickly.

To read the full report click here

Source:  Federal Reserve Bank of Atlanta

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