Hello Curious and thanks for your question.
To be frank, a lower priced short sale or foreclosure in ANY neighborhood (be it in San Francisco's Nob Hill, San Jose's downtown, or Saratoga) will negatively impact the housing prices in the area. There are three reasons for this:
1. The below market priced property affects the comparable prices in the neighborhood on websites commonly used by buyers seeking property information, such as Zillow and Trulia. Their mathematical algorithms will take the lower price into account, and, while one foreclosure does not "sink" the neighborhood, there will be noticeable reduction in prices as a result of the foreclosure home and list or sales price.
2. The short sale or foreclosure property creates an "expectation level" for homeowners seeking entry into the community. Although the foreclosure property may have been in poorer condition, which was the main reason for the lower value, every buyer will gravitate toward the lower cost and expect that homes in the same area will be worth the same lower fee.
3. The new rules of the HVCC (Home Valuation Code of Conduct)--which although it does not apply to jumbo loans is often used in appraisals for homes even in this range--will take the foreclosure or short sale comparable into account in the preparation of the appraisal, and because the new HVCC appraisals also now add a "trend" prediction in the appraisal, the lower priced short sale or foreclosure will further decrease values in the area.
Unfortunately, without knowing exactly how much loss is sustained on the home in question (market price versus actual sales price), it's difficult to say how the values will be affected along the street especially since the values are affected by so many unpredictable factors such as demand, interest rates, location of home, proliferation of comparables, amenities, current demography of and number of available buyers, etc. All we can say with some certainty is that a short sale or foreclosure often does negatively impact housing prices in any given area.
For more information, feel free to contact me with specifics and I'll see what I can do to help.
Grace Morioka, SRES, e-Pro
Area Pro Realty
See my blog on "21st Century Selling - Affordable, Fixed and Flat"