Foreclosure Vacancy Effects

Foreclosure Vacancy Effects

In 2006, housing prices had reached their zenith and then started to decline, thus signaling the start of the housing crisis. From 2006 – 2007 housing crisis occurred because of increasing foreclosures in the Alt-A, mortgage, collateralized debt obligation, hedge fund, subprime mortgage, foreign bank markets, mortgage and credit markets. The large amount of people who were unable to pay their mortgages when their teaser rate was over (for adjustable rate mortgages) caused the mortgage and credit crisis. By late 2011, to early 2012, home price levels had reached their low.

With many people unable, or unwilling, to pay their increased mortgage rates, millions of homes went into foreclosure. In 2010 alone, one point eight-five million people received foreclosure notices throughout the nation. In comparison six to eight hundred thousand people normally receive foreclosure notices in an average year. These foreclosed normally stay empty for a period of time before being sold, but with the increase in the number for foreclosed homes this amount of vacancy time for a home has increased drastically. These foreclosed homes often go empty for months and bring down the value of the surrounding properties. So does the foreclosure of a home have a lasting effect on the home? According to evidence, yes. These homes, often, still have higher than average vacancy rates two to five years after being foreclosed on.

However foreclosures don’t just affect the house, but the community as well. Foreclosures affect the community by lowering the prices of homes in the area, either by adding a home whose price is greatly reduced or adding to shadow inventory. Shadow inventory houses are houses that are left vacant until the owner, either a private individual or an institution, decided to sell them, often when the market recovers in order to garner more money out of the property. This causes lower prices