Why Foreclosures are Bad for Home Ownership

According to this research from Harvard and MIT, reprinted below from Housing Wire,  A foreclosure reduces the value of a house by 27%, on average, and accounts for a much steeper price drop than other forced sales (like death). Despite every effort by the US Government to buoy the housing market, they have not been able to stem the rash of foreclosure.

This is not necessarily being brought upon us by the worse employment market in history. It is compounded by “Strategic defaults” that continue at an alarming rate. These are defaults by homeowners who can afford to pay their mortgage, but choose not to because their home is worth less than their mortgage. They know thier bank, already overridden with foreclosures, won’t get around to evicting them for as long as two years, allowing them to live in the house for free. This also allows the homeowner to stash away thousands of dollars in extra cash and get away with it.

As of June, the Federal Government has dumped $3.7 Trillion dollars toward this problem. The impact only served to stop the fall - however the underlying fundamentals do not seem to be getting any better. Good information to keep in mind as Mid-summer reminds us that Fall is coming near. I think that we are in for a long cold winter in real estate.

Please enjoy this Housing Wire article - very well done.