According to the results of a new study by a research economist at the Federal Reserve Bank of Cleveland, foreclosed homes that are sold at auction are two to four times more likely to be vacant five years after the sale than those sold through conventional transactions[1]. The researcher, Stephan Whitaker, credits this tendency to the fact that homes sold at auction are usually purchased by “banks or government agencies, not families…[that] sit on them until they’re eventually sold again.” Whitaker suggests that foreclosure may “permanently scar some homes” and lead to long-term vacancies[2].

Not surprisingly, Whitaker also determined that “the distribution of foreclosures is heavily weighted toward high-poverty areas,” which compounds the blight issues associated with long-term vacancies. Frequently these vacant homes are minimally maintained, lowering the probability of sale and also minimizing neighbors’ ability to “extract equity” from their properties as well.

Interestingly, Whitaker’s study bucks conventional trends and does not include real estate investors in the roster of culprits for vacancies of homes after auction, although he does target “banks and government entities.” Do you think that more of an effort should be made to encourage investor-buying as well as owner-occupant buying?

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[1] http://www.bizjournals.com/columbus/news/2011/07/26/foreclosures-create-long-term-drag-on.html

[2] http://www.clevelandfed.org/research/commentary/2011/2011-12.cfm