2013 Update: The Spillover Costs of Foreclosures


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Published: August 29, 2013

The financial harm caused by over 12.5 million foreclosures from 2007-2012 is the focus of this brief, the fifth in a series of updated on related findings.

Between 2007 and 2012, over 12.5 million homes have gone into foreclosure. These foreclosures directly harm the families that experience them, obviously, and they also have negative effects that extend to the neighborhood, community and wider economy. There are myriad costs of foreclosures, but in this report we focus on one: the economic impact on neighboring homeowners who lose home equity as a result of reduced property values.

This brief is the fifth in a series, updating our last report that was issued last year. Our key findings:

  • About $2.2 trillion in property value has been lost or will be lost by residents who live in close proximity to properties that have already started the foreclosure process. We estimate that over 95 million households have lost home equity as a result of neighbors’ foreclosures.

  • As we found last year, over one-half of the spillover loss is associated with communities of color. Minority neighborhoods have lost or will lose $1.1 trillion in home equity as a result of spillover from homes that have started the foreclosure process, reflecting the high concentrations of foreclosures in neighborhoods of color.

  • On average, families affected by nearby foreclosures have already lost or will lose $23,150 in household wealth, representing 8.8 percent of their home value. The future losses are projected based on foreclosures that have already begun. Families impacted in minority neighborhoods have lost or will lose, on average, $40,297 or 16 percent of their home value.

Importantly, these losses represent only the wealth that has been lost or will be lost as a direct result of being in close proximity to homes that have begun the foreclosure process. We do not include in our estimate the total loss in home equity that has resulted from the crisis (estimated at $7 trillion), the negative impact on local governments (in the form of lost tax revenue and increased costs of managing vacant and abandoned properties) or the non-financial spillover costs, such as increased crime, reduced school performance and neighborhood blight.

For background, methodology, and more information, download the full report below.