The spatial and time-varying contagion effect of foreclosures

The spatial and time-varying contagion effect of foreclosures

We employ a Cox proportional hazard model to examine the effect of observed mortgage defaults within a neighborhood on homeowners’ strategic default decisions, using multiple datasets from the Fresno-Clovis metropolitan area in California between 2007 and 2012. We show empirical evidence that the contagion effect of foreclosures declines rapidly with distance. The effect declines gradually over time, but it tends to be long-lasting. We include a racial diversity indicator in our study to capture social interactions. We find that the contagion effect attributable to social interactions is stronger in racially diverse neighborhoods.

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