Foreclosures Create Ripple Effect in Neighborhoods

Even if you’ve been a model homeowner who has never missed a mortgage payment, your neighbor’s foreclosure could drag down the value of your home.

That’s because when those homes sell at discounted prices, the numbers factor into what a buyer will be willing to pay for a home in your area. “It could really have a large negative impact on a neighborhood,” warns realtor Ron Sitrin of Long and Foster Real Estate.

John Taylor, President and CEO of the National Community Reinvestment Coalition, echoes the dire prediction.

“If I have a foreclosure on a house six houses away I’m going to lose value in my house,” Taylor says. “If I have another foreclosure ten blocks away down the street I’m going to lose additional value, and then it compounds itself.”

It is something that worries Susan Evans, who lives in the Virginia suburbs outside Washington, D.C. Evans has been a homeowner since she was just 18, and has seen many twists and turns in the market.

“I read the local papers and I do notice the re-sales and see the foreclosures posted, so I know that certainly has an impact,” Evans says.

While she sympathizes with those in her area who have suffered foreclosures, Evans is concerned about realizing a return on the investment she’s made in her home once it goes on the market. She has been counting on the equity in her home to serve as part of her retirement nest egg in the future, but now doubts she’ll even turn a profit.

Sitrin says he has had to talk many sellers through the new reality, that both expectations and sales prices have to be lowered.

“There’s been some difficult conversations with some sellers who really felt their house was worth substantially more than what the foreclosed homes sold for,” Sitrin laments. He says, while that assessment is often true, many buyers won’t recognize the distinction. Sitrin says it’s led to a “disconnect” for frustrated sellers.

The conflict isn’t likely to resolve any time soon, according to Taylor, who calls the foreclosure outlook “dismal” and “bleak.” Taylor believes there are roughly 11 million more American families facing foreclosure over the next two to three years.

“We would be smart as a nation to begin to see that what happens to our neighbors and our neighbors’ properties really is something that affects our lives, “ Taylor cautions. “We ought to find a way to modify their mortgage in a way that they can continue to be responsible homeowners.”