Foreclosure is worse than death – at least when it comes to home values, according to a new MIT study.
The study done by an MIT economist and researchers from Harvard says that foreclosures reduce home values by an average of 27 percent. Comparatively, a home sold because of an owner’s death only reduces the value by 5-7 percent and a home sold as the result of bankruptcy only drops the value by about 3 percent.
The researchers used data garnered from homes sales in Massachusetts over the past two decades. Their study also showed that the value of homes within 250 feet of a foreclosure sale also drop by about one percent. And, not surprisingly, lower priced neighborhoods experience greater discounts for foreclosure properties – primarily because, researchers said, lenders are incentivized by higher fixed costs of owning the property due to vandalism.