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Wednesday, June 27, 2012

Foreclosures Cause Only Temporary Price Drops For Neighbors

New Jersey legislators backing the ruinous, wealth destructive and discriminatory Residential Foreclosure Transformation Act -- one of the very worst pieces of legislation to pass any state legislature in a long time -- are dead wrong in trying to deal with the housing price crash.  The evidence comes from studies by the nation's various Federal Reserve Banks which conclude that foreclosures' adverse effects on surrounding properties' values are only temporary, and that (surprise, surprise) many state laws seeking to restrict, deter or prevent foreclosures are only worsening the housing crisis. 

Several studies surveyed by the Atlanta Fed in 2010 suggested that "foreclosed properties sell at a discount, likely because such properties are in worse condition...[and that] very nearby foreclosures appear to depress the sales prices of nondistressed properties although this effect decays rapidly in physical distance and time." In other words, the negative effect of foreclosures on the home prices of nearby homes is only temporary.  By contrast, New Jersey's Residential Foreclosure Transformation Act (which Governor Christie has yet to sign or veto) on surrounding home values will cause a permanent and extreme loss in property values, because that bill will allow the conversion of residential real estate into deed-restricted low-income or affordable housing or other properties for special social welfare uses, so that the properties cannot be converted back into "regular" residential real estate until 30 years after their conversion after being bought in foreclosure!

The Act passed the New Jersey State Senate Monday afternoon (21 for, 18 against, one abstained), and a similar bill passed the State Assembly hours later (45 for, 33 against, one abstained).  In each house, two Democrats joined the unanimous Republican caucus in voting against the bills.  The Assembly will consider the Senate version Thursday afternoon in its last session before the legislative summer recess.

Eric Dixon is an investigative attorney admitted to the Bar of New York and New Jersey, and is on the Board of Directors of the independent economic think tank the Financial Policy Council. 

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