Foreclosures and House Prices

This paper studies the impact of foreclosures on house prices in Italy using a large dataset of online listings provided by Immobiliare.it, the most popular online portal for real estate services in Italy. We estimate that the foreclosure discount is considerable, and this would suggest a high degree of market segmentation and limited spillovers from foreclosures to the market for non-foreclosed homes. However, by exploiting the exogeneity of the market entry of foreclosures, we find that new foreclosures increase home sellers' propensity to adjust their list price. Moreover, following the methodology in Campbell et al. (Am Econ Rev 101(5):2108-2131, 2011), we show that foreclosure listings have a significant negative impact on the prices of non-foreclosed nearby homes. Our evidence is quantitatively consistent with the recent literature on the impact of foreclosures on the US housing market.