On average, a foreclosure reduces the value of a house by 27%, says a new paper from an economist at the Massachusetts Institute of Technology and researchers at Harvard University.In the study, which is due for publication in the American Economic Review, MIT economist Parag Pathak and Harvard researchers John Y. Campbell and Stefano Giglio conclude that a foreclosure puts a much bigger dent in a home’s value, compared to a forced sale as a result of bankruptcy or the death of the owner.Mr. Pathak says he’s not surprised that there’s a discount due to foreclosure, but says, “It is surprising that it’s so large,” according to a press release. The paper uses data on house transactions in the state of Massachusetts over the last 20 years.
By Nick Timiraos, July 26, 2010 WSJ

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