Foreclosures hurt all property values … NOT !

Ken’s Take: Obama keeps claiming that foreclosures have a debilitating economic impact on practically all homes prices.  That’s just not true.

First, U.S. foreclosures are concentrated in only a handful of states: AZ, CA, NV, FL, and MI … and within a handful of overbuilt, price-bubbled communities within those states.

Second, the evidence suggests that homes need to be immediately proximate to — i.e. within a couple of blocks of — a high number of foreclosures for there to be any significant impact.  In other words, foreclosures in California don’t impact home values in New York.

Third, even if homes are proximate to foreclosures, the impact on home values is minimal and short-lasting, unless there has been a significant economic causal shock in the community (e.g. an auto plant closing)

Bottom line: stopping foreclosures will only help those being foreclosed upon — most of whom deserve to be foreclosed upon.

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Below is a summary of the article’s context.  See the source article for the analysis.

Excerpted from Weekly Standard, “Obama’s Fuzzy Housing Numbers”, Feb 24,2009

If President Obama is to sell his mortgage bailout plan to the public, an important argument will be his claim that preventing foreclosures actually helps all homeowners by preventing housing prices from dropping:

“This plan will not save every home, but it will give millions of families resigned to financial ruin a chance to rebuild,” Mr. Obama told a crowd here, in one of the communities hardest hit by the housing crisis. “It will prevent the worst consequences of this crisis from wreaking even greater havoc on the economy. And by bringing down the foreclosure rate, it will help to shore up housing prices for everyone.”

The claim that the program helps “shore up housing prices for everyone” has been frequently repeated by administration officials. Housing and Urban Development Secretary Donovan elaborated on the point:

And in all, this will help, as I said, 3 to 4 million families. But let’s be clear: This will also help millions of other families, as well. Recent research shows that neighboring homes to foreclosed homes lose as much as 9 percent of their value. So people who are not in danger of foreclosure still are suffering from nearby foreclosures. This will help those families, as well. Our estimates are that the average home — not the average home in foreclosure, but the average home across the country will gain $6,000 in value relative to had this plan not been put in place.

The president, the administration, and its advocates can promote any mortgage relief plan they choose on whatever basis they wish. But any claims that there is evidence that bailing out the mortgages of particular individuals helps all property owners is simply not supported by any real research and should be viewed with great skepticism.

Read the full analysis – with numbers and sources:

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