There goes the neighborhood

How long do house foreclosures hurt neighborhood property values?

That's no small question on the Gulf Coast, hit hard by some of the worst foreclosure rates in the country.

But there's hope.

A recent research paper by four economists at the Federal Reserve Bank of Atlanta concludes the negative effect of a foreclosure on property values goes away within a year after that home is sold to a new owner.

“We find that while properties in virtually all stages of distress have statistically significant, negative effects on nearby home values, the magnitudes are economically small, peak before the distressed properties complete the foreclosure process and go to zero about a year after the bank sells the property to a new homeowner,” the economists say.

That's because the owner of the house who is the target of the foreclosure has little incentive to maintain the home while the new homeowner is likely to improve it.

A speedy foreclosure process helps the neighborhoods, economists conclude. “Our analysis shows that policies that slow the transition from delinquency to foreclosure likely exacerbate the negative effect of mortgage distress on house prices,” Fed economists write.