The Impact of REO Sales on Neighborhoods and Their Residents

The foreclosure crisis in the U.S. has resulted in a large number of residential REOs. These properties have been found to reduce the value of nearby homes. An unresolved issue is whether these negative spillover effects disappear after the REO is sold. We hypothesize that these effects are greater if the REO is purchased by an investor in comparison to an owner–occupant. In this paper we report the results from estimating the spillover effects of both current and ex–REOs, where the latter are divided into those possessed by owner–occupants and those possessed by investors. The results lend considerable support to our hypothesis.