Spatial Variation in Foreclosures in Los Angeles

Research on the initial stage of the current mortgage foreclosure crisis focuses on its causes, scope and economic impact. This study contributes to the emerging literature by showing how the crisis plays out differently across urban neighborhoods. Clearly, the two most immediate causal factors are the relative size of the housing bubble and the number of risky loans. Yet, neighborhoods also are defined by demographic and socioeconomic characteristics, among other factors—conditions that may shape their experience of regional housing market dynamics. This study examines variation in first quarter 2008 foreclosure rates for 262 zip codes in Los Angeles County. Using a recursive model and weighted least squares regression, we find that the exurbs and communities with more subprime loans, bigger housing bubbles, lower current demand, and fewer college-educated residents have higher foreclosure rates. Race and poverty indirectly affect foreclosure rates through subprime lending and housing bubble size. Our findings illustrate the complex relationships between neighborhood economic, socioeconomic and demographic factors and foreclosure and suggest ways that policymakers in sprawling, high growth, multiracial regions can target remedial measures, as well as prevent future housing crises.