The economic impact of the housing bust on homeowners who live near a foreclosed property comes to about $2 trillion, according to a new accounting by a consumer advocacy group.
In a report released Wednesday, the Center for Responsible Lending estimates that more than half of that “spillover loss” occurred in communities of color, which the study’s authors define as census tracts where more than 50 percent of the residents are Hispanic, African-American or otherwise non-white. Those losses, the authors note, reflect the high concentrations of foreclosures in those neighborhoods.
The study looked only at the indirect impact of foreclosures on properties within one-eighth of a mile of a home in foreclosure. The total loss of home equity since the housing market collapsed is more like $7 trillion, the consumer advocacy group said. That figure doesn't include additional indirect costs.
“Communities with high concentrations of foreclosures lose tax revenue and incur the financial and non-financial costs of abandoned properties and neighborhood blight, while homeowners living in close proximity to foreclosures suffer loss of wealth through depreciated home values,” the report’s authors wrote.
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Households near a foreclosed property lost or will lose an average $21,077 in wealth or about 7.2 percent of their home value, the report found. In minority neighborhoods, the families lost an average of $37,084 or 13.1 percent of their home value.
To arrive at its estimate, the group combined statistics collected by the government, Mortgage Bankers Association and a private database maintained by Lender Processing Services, a company that provides services to mortgage lenders.
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The authors note that over time some of the losses inflicted by the spillover effect of foreclosures will be offset by rising home prices. The estimate covers foreclosures started between 2007 and 2011.
The pace of home new foreclosure filings has been falling this year, falling 7 percent in September compared with the previous month and down 16 percent from September 2011, according to RealtyTrac, a research firm. That was the lowest total since July 2007.
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