Interesting. The Journal of Sustainable Real Estate recently accepted a paper showing that, after controlling for incomes, neighborhoods with low car ownership have fewer defaults on mortgages. NRDC took a look at the findings, and concluded that…
…factors such as neighborhood compactness, access to public transit, and rates of vehicle ownership are key to predicting mortgage performance and should be taken more seriously by mortgage underwriters, policymakers, and real estate developers.
In their review, NRDC suggests a few reasons why neighborhood car ownership is so closely linked with mortgage defaults. First, folks who live in transit-oriented neighborhoods face lower financial risks when gas prices spike—which is just what they did in the runup to housing market collapse in 2008. Second, homes in transit- and pedestrian-friendly locales retain their resale value better than homes in sprawling suburbs—so mortgages are less likely to go “underwater,” with homeowners owing more on their mortgages than the house is worth. Third, all else being equal, homes in transit-oriented neighborhoods sell quickly—so homeowners who can’t make their mortgage payments can sell their homes rather than fall into default.
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The study’s not in print yet, but I’d be interested in seeing what other demographic factors besides income the authors controlled for. What if folks in low-density exurbs are younger than average, or have more kids per household? If so, they may have fewer savings or higher monthly costs—which could also elevate foreclosures. In that case, car ownership and mortgage defaults would merely be linked by correlation, not by causation.
Regardless, this study is just the latest in a growing pile of evidence that living in a transit- or pedestrian friendly neighborhood may be able to protect household budgets. As the Center for Neighborhood Technology has shown, when you combine both housing and transportation costs, living in a seemingly “affordable” suburb can actually be more expensive than living in a place where you don’t need a car for every trip. And researcher Joe Cortright has found that, after controlling for other housing amenities, high walkability (as measured by a home’s Walk Score) can add tens of thousands of dollars to a home’s value—a finding that adds some weight to NRDC’s contention that high resale values in transit-oriented neighborhoods protect against mortgage default.
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