Collateral Damage: The Spillover Cost of Foreclosures

Foreclosures have drained nearly $2 trillion dollars in lost property value from nearby households. Half of this spillover cost has been incurred by communities of color.

by Center for Responsible Lending,October 24, 2012

People who happen to live near foreclosures lose significant home equity.

• $1.95 trillion in property value has been lost or will be lost by residents who live close to foreclosed properties.
• Based on loans that entered foreclosure between 2007 and 2011.
• This spillover estimate includes losses stemming from completed foreclosures and also future losses projected on foreclosure starts.

Communities of color are bearing the largest share of the cost.

• Spillover costs will drain $1 trillion in home equity from minority neighborhoods.
• This represents a huge setback for homeowners of color who had previously made economic progress.

The economic impact per family is significant.

• Overall, the average spillover cost per family is or will be $21,000 lost in household wealth, representing 7% of their home value.
• In minority neighborhoods, the average loss is or will be $37,000, or $13% of their home value.

The TOTAL cost of foreclosures is much larger.

• This estimate does not include the total loss in home equity resulting from the foreclosure crisis (est. $7 trillion)
• Also doesn’t include losses in tax revenue, the increased costs of managing vacant properties and non-financial spillover costs, such as increased crime, lower school performance by children and neighborhood blight.