The Contagion Effect of Neighboring Foreclosures
- (pp. 313-35)
Abstract
We examine the contagion effect of residential foreclosures and find strong evidence of a social interactions influence on default decisions where the interaction is based on neighbors’ behavior in a previous period. Using a unique spatially explicit parcel-level dataset documenting residential foreclosures in Maryland for the years 2006-2009 and a highly localized neighborhood definition, based on 13 nearest neighbors, we find that a neighbor in foreclosure increases the hazard of additional defaults by 18 percent. This feedback effect goes beyond a temporary reduction in local house prices and implies a negative social multiplier effect of foreclosures. (JEL R23, R31)Citation
Towe, Charles, and Chad Lawley. 2013. "The Contagion Effect of Neighboring Foreclosures." American Economic Journal: Economic Policy, 5 (2): 313-35. DOI: 10.1257/pol.5.2.313Additional Materials
JEL Classification
- R23 Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics
- R31 Housing Supply and Markets
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