Arnold Kling  

House Prices Are Regional

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Phil Izzo of the Wall Street Journal's blog mentions a study showing that much of the country was insulated from the housing boom and bust. We like to mock the finance industry folks who said that a nationwide housing bust would not happen, but perhaps they were right They may have under-estimated the steepness of the regional busts that did occur and the extent to which there was over-leverage in the whole mortgage finance system.

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COMMENTS (9 to date)
baconbacon writes:

I would prefer to look at a graph like that in terms of population % rather than total metropolitan areas. The densest areas (NY, Bos, NJ, Phi, LA, SF) all experienced boom/bust along with the Florida coast.

The second thing I would look at is housing prices in those areas- the 8k and 6.5k tax credits should disproportionately effect lower cost homes as they are a larger portion of the purchase price. You don't want to make the mistake in assuming that efforts to prevent the bust had equal effect in all markets.

John V writes:

well done. It kind of confirms what I think a lot of people knew who don't live in those "hots spots". I don't live in such a "hot spot". In fact, my metro area had a tan dot for no boom, no bust. Most people who live here would definitely agree.

As news outlets have reported on this issue over the past few years, the lack of uniform housing price movements was mentioned but usually only as a fleeting comment.

Classical liberal writes:

Don't you believe that building restrictions (that is, state-induced scarcity) have something to do with this phenomenon?

John Thacker writes:
The densest areas (NY, Bos, NJ, Phi, LA, SF) all experienced boom/bust along with the Florida coast.

The Texas metro areas (and NC and GA) have more density than people think. But one problem is that building restrictions are correlated with density. Some places with density don't have building restrictions, but in most cases those are places where there's undeveloped land nearby the city that provides a sort of safety valve.

David C writes:

They're comparing 2000-2006 with 2006-2008. I thought the housing collapse began in the first quarter of 2008. Isn't this distorting the numbers a bit?

Patrick writes:

I find their conclusions uncompelling. My family lives in Wisconsin (in the article, WI is "green" which indicates no housing bust), and housing values there have seen a definite decline.

Without more detail, consider me deeply skeptical.

Mike Rulle writes:

This real estate crisis was national but became so due to the extremes of California, Vegas, Phoenix and Florida. This was well documented at the time. The percent of defaults relative to population was by far most present in these locations.

Interestingly, California is starting to recover. In part this is because they already had hit bottom in their crisis well before it became an official crisis in late 2008.

The volume of house sales in California (in units, not dollars) began to reach near all time highs in 2009 in certain key metro areas as prices declined back to 2001 levels from the peak.

Much of this was happening a year ago before the Feds could even impact it. I believe California had the biggest price increase in last Schiller index but still at deep discounts to bubble highs---but near 2000-2002 levels.

Ironically, California used regulations to help create the bubble and free markets to help cure the effect of its bursting.

The Trulia website provides interesting data on this.

AMW writes:

I'm also deeply skeptical, mostly because they appear to be going off of housing prices, not quantities. In Wichita (listed as no boom, no bust), prices have remained pretty stable (fell just a bit last year for the first time), but total sales peaked in 2006 and have fallen precipitously since. Housing markets have sticky prices, so quantities tend to adjust first.

I say, keep your eye on all those green dots.

Steve Sailer writes:

About 7/8ths of all defaulted dollars were lost in four states, which really is just two places: Greater California (CA plus AZ and NV) and Florida. California alone must have been something like 5/8ths of all losses.

Greater Detroit was also a disaster, but housing prices were already so low that it didn't add up to much.

It's not just that California has more restrictions on development than, say, Texas, but there is less land left to develop near major California cities, since they are hemmed in by ocean and mountains, while Texas's big cities can expand 360 degrees into the surrounding well-watered prairies.

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