Foreclosed homeowners aren't the only ones who have lost stratospheric amounts of equity in the past six years. The financial pain of foreclosure rubs off on their neighbors as well, lowering home values as far as an eighth of a mile away from foreclosed properties.
Neighbors of foreclosed homes, more than half from African-American and Latino homeowners, will lose a total of $1.95 trillion in property value , according to a new study from the Center for Responsible Lending. Overall, the average spillover cost per affected family is or will be $21,000 in lost household wealth, representing 7 percent of home value. In minority neighborhoods, the average loss is or will be $37,000, or $13 percent of median home values in those neighborhoods.
The report, “Collateral Damage: The Spillover Costs of Foreclosures,” updates CRL’s research on the economic harm that homeowners suffer by living near foreclosed properties—the “spillover” cost. Also, for the first time, the research examines the impact in minority neighborhoods.
The spillover cost of loans that entered foreclosure between 2007 through 2011 has affected homeowners in neighborhoods all over America, the report finds, but African-American and Latino communities have been especially hard hit. A $1 trillion drain in home equity from minority neighborhoods represents a huge economic setback for homeowners living there.
The $2 trillion dollar figure estimated in the report represents only part of the total cost of foreclosures, since the spillover costs do not include equity lost by families who are foreclosed on, nor the billions of dollars drained from communities as a result of lost tax revenue, vacant properties, increased crime, and lower school performance by children.
“CRL’s report is troubling evidence of how much the economic costs of foreclosures are spilling over into communities all over America,” said Wade Henderson, president and CEO of the Leadership Conference on Civil and Human Rights.. “Communities of color – which have been targeted for years by predatory lenders, and abused for years by mortgage servicers – have been practically drowning. Until policymakers get serious about reducing foreclosures and restoring meaningful home ownership in all communities, a full economic recovery will likely remain out of reach.”
Janet Murguia, president and CEO of the National Council of La Raza, said: “The wealth drain triggered by foreclosures is continuing unabated, hurting Latino families and other vulnerable communities the hardest. We’re calling on policymakers to show strong leadership in stopping the foreclosure crisis and making fair and sustainable housing a national priority.”