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MIT-Harvard Study: Foreclosure drops house value by 27%
Posted on 16. Sep, 2010 by pennsylvaniashortsale in Home Owner Help
A foreclosure reduces the value of a house by 27%, on average, and accounts
for a much steeper price drop than other forced sales, according to a study by
an Massachusetts Institute of Technology (MIT) economist and two Harvard
University researchers.
In comparison, when a house is sold after the death of an owner, the price drops
5% to 7% on average. When an owner declares bankruptcy, the value sinks 3%,
according to the report.
The research, “Forced Sales and House Prices,” has been accepted for
publication in the American Economic Review.
In the study, MIT economist Parag Pathak and Harvard researchers John Y. Campbell
and Stefano Giglio examined 1.8m home sales in Massachusetts from 1987 through
March 2009.
The researchers believ e their discovery of the gaps between the price reductions
is key to isolating the effects of foreclosures. Because the declines in value are
so disparate, yet occur among comparable homes in the same times and places,
the reductions in value are not all attributable to the same overarching economic
conditions, the researchers believe.
“It’s not surprising that there is a discount due to foreclosure,” said Pathak. “But it
is surprising that it’s so large.”
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