Inner-city foreclosures are likely minorities who fell victim to predatory lenders (or simply didn’t read/understand the fine print). Their problem is not so much a decline in value, but ruinous interest rates. This is easier to deal with because the value of the underlying asset has not dropped as precipitously. 10 to 15 percent is one thing, 30 to 40 percent is another.

One could conjecture that creative class individuals in the inner cities, being better educated, were more prudent with their mortgages. I have no data to back this up, but it would be interesting to investigate.

Did you read the article? Foreclosure rates are *higher* in the “marginal areas of top-shelf cities” than in “the dead-end parts of the country.” Not “gradually approaching.”

“Also a high rate in Clark County, Washington a Portland suburb across the Columbia River which doesn’t have Oregon’s land use laws that limited overbuilding.”

The land use laws also pushed up prices and pushed people out to the areas without them. The land use laws helped cause the bubble, see for example Ed Glaeser’s research. Restricting supply means that when demand changes, prices change more sharply rather than the supply increasing.

In general, these “top-shelf cities” restricted building. This raised up prices, and also pushed people farther out into suburbs to find housing. These suburbs generally allowed more building. The suburb pricing reflected the center city pricing at first, probably influenced by the psychology of people coming from areas with more expensive housing who couldn’t believe the “deals” that they were getting.

But many of the people settling in the outer exurbs were doing just that– “settling.” They were unable to afford a house in a more convenient location. Now that prices have dropped some, they can, so the outer exurbs have become more popular. Combine that with generally lower incomes for people that had to go farther out to get their standard dream house and it’s no surprise that those areas are having foreclosures first.

If the land use laws in these super-star cities actually encouraging increasing density and making the cities liveable, that would be one thing. But in a lot of places, like in Georgetown in DC, the land-use laws and zoning are just about preventing building, while preserving the low density pockets in the central city for the wealthy who can afford them.

Making housing unaffordable and pushing people out into rural areas to buy a house is not a solution to the bubble; it exacerbates it. That some of these wealthiest areas don’t bear the brunt of their own policies (since they can still afford to live there) doesn’t justify it.

Areas like Dallas, Houston, Charlotte, and Raleigh were fast-growing, but didn’t see a bubble in house prices nor the foreclosures we’re seeing now.

I know California’s Central Valley towns have had very high foreclosures for a while. It used to be said you saved several thousand dollars in house prices every mile you went out of San Francisco. I wonder if the foreclosure rates show a similar pattern, and if the other big cities — LA, Sacramento, San Diego — would have similar circles.

Until very recently the #1 thing Bay Area homeowners said was “if we had waited 6 months we couldn’t have afforded to live here any longer.” Even if prices in these areas have notionally dropped, I suspect the vast majority of people expect the appreciation to resume in the near-intermediate term. So long as this expectation exists, homeowners may be valuing this “perceived equity” in their decision process. This reduces the incentive to default for those people who still have a choice.

However, if you look in marginal areas of top-shelf cities, you will likely find foreclosure rates that gradually approach the average of the dead-end parts of the country. Places Nob Hill, the Upper East Side, Beacon Hill have all been desirable for many decades, but go back 10-20 years and many of the “up and coming” neighborhoods were thoroughly down and out. Thus the “last in, first out” rule will apply.