Forced Sales and House Prices"

This paper uses data on house transactions in the state of Massachusetts over the last 20 years

to show that houses sold after foreclosure, or close in time to the death or bankruptcy of at least

one seller, are sold at lower prices than other houses. Foreclosure discounts are particularly large on

average at 27% of the value of a house. The pattern of death-related discounts suggests that they may

result from poor home maintenance by older sellers, while foreclosure discounts appear to be related

to the threat of vandalism in low-priced neighborhoods. After aggregating to the zipcode level and

controlling for regional price trends, the prices of forced sales are mean-reverting, while the prices

of unforced sales are close to a random walk. At the zipcode level, this suggests that unforced sales

take place at approximately ecient prices, while forced-sales prices re

ect time-varying illiquidity in

neighborhood housing markets. At a more local level, however, we nd that foreclosures that take

place within a quarter of a mile, and particularly within a tenth of a mile, of a house lower the price

at which it is sold. Our preferred estimate of this eect is that a foreclosure at a distance of 0.05 miles

lowers the price of a house by about 1%.