The Role of Proximity in Foreclosure Externalities: Evidence from Condominiums

We measure the effect of foreclosures on the sale prices of nearby properties using a dataset of condominiums in Boston. A foreclosure in the same association and at the same address depresses the sale price by 2.5 percent, but properties in the same association but located at a different address have an effect that is tightly estimated at zero. Since properties in the same association are close substitutes, we argue that the evidence points against the pecuniary externality of property coming on the market and toward a physical externality as the source of measured foreclosure externalities.