Analyzing the Contagion Effect of Foreclosures as a Branching Process: A Close Look at the Years that Follow the Great Recession

Abstract

We lean on the phenomenon called the “foreclosure contagion effect,” generate proxy measurements of contagious foreclosures, construct mathematical branching processes that depict the spread of these consequential defaults, and analyze the gradual progression of these foreclosures across the 366 metropolitan areas in the U.S. throughout the 15 quarters that follow the great recession. We find that the foreclosure epidemic was far from its conclusion by the end of 2013, although the U.S. housing crisis is broadly defined as lasting from 2007 to 2009. In this period, prime-loan (subprime-loan) associated contagious foreclosures had further worsened in about 52% (27%) of the metropolitan areas in the U.S.