Mortgage foreclosure pulls home's price down 27%, says MIT study

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Real Estate Services

Las Vegas, NV houseWhen major upheaval pummels a real estate market, it as a rule leads to home value depreciation. That's the easy part. The hard part is to try to put an actual number on the price reversal. A team led by the Massachusetts Institute of Technology, or more commonly MIT, recently conducted some deep research to determine how much a home's value deteriorates because of a foreclosure. The current housing and mortgage meltdown obviously got them thinking and they decided to dig up some realistic answers.

The group looked at 1.8 million real estate sales in Massachusetts spanning from 1987 all the way to 2009, which then includes data from the present housing collapse. After spending considerable time shifting through the massive amount of information in front of them they at last were comfortable in concluding that - on average - a foreclosure slices 27% off a home's value. That is a high number, and subject to some serious debate.

The same MIT team also studied other forced sales and their effect on real estate values. When the homeowner goes into bankruptcy, the property's value drops 3%. And when a homeowner death brings about a sale, the price sinks on average 5-7%. Clearly, a mortgage foreclosure has a much more profound impact on the underlying value than the other two.

The main reason to the wide separation between the different forced sales is the condition of the home. Homeowners sliding inevitably toward foreclosure will spend the money they still have on everyday necessities and not on property upkeep. That's stage one. Stage two is when mortgage lenders foreclose and then generally neglect their REOs - real estate owned - allowing properties to fall into further disrepair. There clearly are two forces here steadily gnawing on the property's value. In the other two instances neither one is prominently present.

As the MIT research proves, it would be to the mortgage providers' benefit to maintain their REOs to attract top dollar when selling. 27% shortfall should make them think again about proper maintenance. But that often is not the case in this current real estate downturn.

 

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Esko Kiuru
Mortgage, real estate and apartment industry analyst 

www.BluefoxToday.com - syndicated mortgage, housing and property management blog

eskokiuru@gmail.com
My cell: 702-499-1006

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Topic:
Real Estate Market Trends
Location:
Nevada Clark County Las Vegas Summerlin
Groups:
Investors
Las Vegas, NV Area Real Estate Professionals
Mortgages
Realtors®
Tags:
mortgage
foreclosure
real estate
housing
homeowner
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Ambassador
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Renée Burrows
Las Vegas Real Estate Broker - www.urLVhome.com
Savvy Home Strategies Realty, LLC-REALTOR®-Estate-Probate

I agree there is a hierarchy of sale prices but to convince a homeowner that there are no comparables to list his standard sale home and support the high price is insane these days!

August 24, 2010 08:33 PM
Rainmaker
568,777
Phil Leng
Phil Leng Team - Residential Real Estate Experts &
Keller Williams Eastside Market Center

Interesting information.

I don't know if the actual number is correct in our area, but there is clearly a loss in price if it is reo.

Phil

August 30, 2010 04:46 AM
Rainmaker
325,145
Esko Kiuru

Renee,

Pricing in Vegas today can be a chore, no doubt.

September 04, 2010 08:00 PM
Rainmaker
325,145
Esko Kiuru

Phil,

At first look, that 27% figure appears rather high. Who knows?

September 04, 2010 08:01 PM
Anonymous #7
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December 29, 2011 05:18 AM
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