CHICAGO—Chicago neighborhoods hard hit by foreclosures face a second threat, that of weaker selling prices for nearby homes, according to new research by Geoffrey J.D. Hewings, director of the Regional Economic Applications Laboratory at the University of Illinois.
Foreclosures in the Chicago area spiked after the 2006-2007 housing bubble as the housing market foundered during the recession. That left many Chicago neighborhoods dotted with foreclosed properties, some of which were vacant or in disrepair.
Still, as reported yesterday, the state’s foreclosure outlook has steadily improved and the numbers of distressed homes could return to pre-recession levels as early as this fall. “In the Chicago foreclosure inventory,” said Hewings, “the average inventory change rates were -24.2% in the past 6 months, -14.3% in the last 12 months and -8.2% in the last 24 months.”
REAL looked at housing data from 2008 to 2012 and was able to put a dollar figure to having a foreclosed property in close proximity to another property. The researchers found that in areas with foreclosures, prices for non-distressed properties could decline by thousands of dollars.
According to the study:
• Foreclosures “contaminated” neighborhoods by dampening home prices. Distressed properties have a higher incidence of being poorly maintained or vacant, factors which detract from the neighborhood’s overall appearance. Additionally, areas with high incidences of foreclosures create a surge of property on the market, a factor which can further weaken prices,
• Having one to two foreclosed properties within a tenth of a mile of a home can reduce its price by $6,535, based on a home worth $150,000.
• Additional foreclosures in close proximity to a home further reduce the price, although not at as steep a rate. In a particularly hard hit area with more than 10 nearby foreclosures, each foreclosure reduced property values by $2,246 accumulating to a total discount of $28,000 according to REAL.
However, the REAL study also notes that “the foreclosure crisis has eased and as more of the distressed properties come off the market, Chicago’s inventory levels, and overall foreclosure outlook, are moving in the right direction.”