Soaring Spillover: Accelerating Foreclosures to Cost Neighbors $502 billion in 2009 alone; 69.5 million homes lose $7,200 on average
Published: May 7, 2009
Cost Climbs to $1.9 trillion during 2009-2012, with 92 million homeowners losing $20,300 on average
This is CRL's third report on the spillover impact of mortgage foreclosures. This new report is based on new CRL projections of 2.4 million foreclosures for all loans (not just subprime) in 2009, and 9.0 million during 2009-2012. This report also reflects a somewhat more conservative methodology for calculating the spillover impact.
Based on current market data, CRL now projects that some 2.4 million foreclosures will occur in 2009, and 9.0 million during 2009-2012. In addition to the devastating impact these foreclosures will have on the affected households, they will also cause a "spillover" effect by depressing the value of nearby homes—most owned by families who are paying their mortgages on time. According to the National Association of Realtors, almost half of all home sales today are foreclosures or "short sales" of properties sold at substantial discount. This has resulted in lower property values for homeowners and a reduced tax base for communities.
We estimate that, in 2009 alone, foreclosures will cause 69.5 million nearby homes to suffer price declines averaging $7,200 per home and resulting in a $502 billion total decline in property values. During the period 2009-2012, we project that foreclosures will cost 92 million U.S. families some $1.9 trillion in lower home values--an average of $20,300 in lost wealth per household.
These projections—representing only property value declines caused by nearby foreclosures, not other price drops associated with short sales or the slowdown in local housing markets—are based on CRL research combined with data from Credit Suisse, Moody's Economy.com, and the Mortgage Bankers Association.