Obama's Fuzzy Housing Numbers
5:16 PM, Feb 23, 2009 • By JIM PREVOR
If President Obama is to sell his mortgage bailout plan to the public, an important argument will be his claim that preventing foreclosures actually helps all homeowners by preventing housing prices from dropping:
The claim that the program helps "shore up housing prices for everyone" has been frequently repeated by administration officials. Housing and Urban Development Secretary Donovan elaborated on the point:
The 9 percent figure seems to come from a study by three analysts at Fannie Mae in a report titled, Spillover Effects of Foreclosures on Neighborhood Property Values, which was abstracted this way:
The only problem is that the study doesn't prove what the Obama administration would like to say it does. Some of it is playing with data. For example:
1. It is only "the most severe impact" that is 8.7% -- this is a foreclosure within 0.1 kilometer of a house with the foreclosure occurring within the last two years. A house 1.5 to 2.0 kilometers from a foreclosure that occurred within two years experiences only a 0.7% decrease.
2. The $6,000 gain in value seems unlikely. The National Association of Realtors said that the median sales price of a home in the 4th quarter of 2008 was $180,100. So the administration is assuming the median home in America would fall in price by 3.3 percent due to neighborhood foreclosures. In order for this to occur, according to this study, the foreclosures would have to occur with a half mile of a house. Yet as Alan Reynolds pointed out in the New York Post, foreclosures are overwhelmingly occurring in just five states.
3. Even if true, the impact dissipates quickly. The study shows that a foreclosure within 0.4 to 0.5 kilometers causes a 4.3 percent dip in neighboring home values -- but only for the first two years. Between three and five years, the dip is down to 1.9 percent and after 6 years, only 0.6 percent.