An Empirical Investigation of the Market Duration of Repossessed Single-Family Houses

Document Type

Article

Publication Date

2012

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Abstract

Purpose – The purpose of this paper is to determine if lender experience in disposing of repossessed single-family houses in the local market is significantly related to the probability a property will sell. In addition, other factors that are significantly related to the market duration of repossessed houses are identified. Design/methodology/approach – The Cox proportional hazard model is used to analyze transaction data for 2,099 single-family houses in Dayton, Ohio. Title to each of these properties was obtained by lenders through foreclosure. The study period approximates the first three years of the subprime mortgage crisis in the USA: 2007-2009. Findings – The marketing efforts of lenders with more local property disposition experience are found to be superior to the efforts of less experienced lenders. The results also indicate that the selling rate function increased over the study period, and there is seasonality in the data which is consistent with lenders attempting to limit holding costs. Research limitations/implications – The study is limited to the experience of lenders in a single local market over a three year study period. Additional research to determine if similar results apply in other markets would be a valuable addition to the literature. Practical implications – While foreclosure is not a desirable outcome for any of the parties involved in a mortgage loan, the paper's results offer a bit of good news for lenders. The results are consistent with organizational learning theory which posits that experience should enhance performance. Given predictions that the mortgage crisis has not yet run its full course, lenders' performance in disposing of repossessed houses is likely to continue to improve. Originality/value – This is the first study to apply the proportional hazard model to the study of foreclosed houses. This technique offers an advantage over previously applied methodologies because it allows the researcher to include properties that lenders did not sell during the study period into the analysis. All previous efforts were limited to sold properties and this restriction may have biased the previous results.

DOI

10.1108/17538271211206635

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