Foreclosures during an economic downturn can impact the values of neighboring homes due to bank ownership and the foreclosure sale process. Homes which have been foreclosed on by a bank may have deferred maintenance, and ultimately may sell for below market values.
During the 2007 - 2009 great recession, many people who had little to no equity in their homes were forced to turn their homes over to their lenders. Low equity was due to many factors such as home purchases which were made at the market value high point, home equity borrowing for purchases not related to their homes, and a severe decline in home values which in the Sacramento region lasted until 2012. Very few people with a substantial amount of equity in their homes were subject to foreclosure and as a result some neighborhoods held their values and had lower turnover of homes than other neighborhoods.
Knowing that homeowners in a neighborhood have a significant amount of equity can increase the chances of neighborhood stability should another economic downturn occur. Instability can challenge relationships, schools, and even public service funding.
When I work with buyers I provide a map that has this data.
