Study Shows Foreclosure Lowers a Property’s Value by 27%

Study Shows Foreclosure Lowers a Property’s Value by 27%

Foreclosed homes permeate the American landscape. According to data from the Massachusetts Institute of Technology (MIT), they make up about one in 12 houses with under $1 million left on the mortgage.

These foreclosures drive down home prices, and MIT gives two reasons for their depreciating effect – because foreclosed homes add to the housing supply and because the financial firms that acquire the houses want to unload them promptly.

However, since foreclosures often occur in economically struggling areas, it is hard to determine how much of the drop in a home’s value is due to its foreclosure, and how much can be blamed on the economy in general.

MIT economist Parag Pathak and two Harvard researchers, John Y. Campbell and Stefano Giglio, have conducted a study to put a price tag on foreclosures.

Specifically, they’ve determined how much a foreclosure affects a home’s value, as opposed to a home going on the market because the owner has died or declared bankruptcy…

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