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TOXIC NEIGHBORS: FORECLOSURES AND SHORT-SALES SPILLOVER EFFECTS FROM THE CURRENT HOUSING-MARKET CRASH

Authors

  • NASSER DANESHVARY,

    1. Daneshvary: Professor of Economics, Department of Economics, University of Nevada, Las Vegas, 4505 Maryland Parkway, Las Vegas, NV 89154. Phone 1-702-895-1660, Fax 1-702-895-1354, E-mail nasser.daneshvary@unlv.edu
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  • TERRENCE M. CLAURETIE

    1. Clauretie: Professor of Economics, Department of Economics, University of Nevada, Las Vegas, 4505 Maryland Parkway, Las Vegas, NV 89154. Phone 1-702-895-3223, Fax 1-702-895-4650, E-mail mike.clauretie@unlv.edu
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    • Nasser Daneshvary would like to acknowledge the University of Nevada, Las Vegas, College of Business summer research financial support. We express our thanks to the participants of the Economics Department's Seminar Series at UNLV for their comments. We wish to thank anonymous referees of the journal for their comments and suggestions.


Abstract

Do home foreclosures and short sales equally affect neighbors? On average, no-default homes sell anytime up to 6 months after sales of foreclosed neighbors suffer a cumulative spillover effect of about 10%. Including the market trend, the total effect increases to 40%. Controlling for foreclosure effects, short sales do not produce additional spillover effects. We apply a modified hedonic model to estimate spillover effects on neighbors, using January 2008 to June 2009 home transactions from one of the most impacted housing markets. Our findings apply to severely “thin” markets and may not be true for stable markets. We show that accurate estimates of spillover effects require correcting for the market trend, two types of time and spatial price interdependence, and the endogenous neighborhood price. (JEL R21, R22, R31, K2)

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