The big news last week on the housing price front was the jump in the S&P/Case-Shiller Home Price Indices. Even though the bounce was rather slight – the widely cited index registered a year-over-year increase of just 0.6 percent – the media glommed on to it as evidence that the housing market might be stabilizing.
On Morning Edition yesterday, I discussed the merits of owning versus renting your home with host Steve Inskeep. The ideal of homeownership is deeply ingrained in the American psyche. For the past half century, owning a home of your own has been the veritable cornerstone of the American Dream. We more or less take it for granted that homeownership is a good thing. Homeownership, it is commonly thought, goes along with higher incomes. It causes people to be more diligent, hard-working, and productive. It leads to stable families, stable communities, and higher levels of happiness and well-being.
But, a whole slew of recent research suggests that there are considerable costs as well as benefits to owning your home. A 1998 Federal Reserve Bank of Dallas study, undertaken well before the boom and bubble, provided detailed empirical evidence of America’s over-investment in housing. Yale University’s Robert Shiller, the world’s leading student of bubbles, housing, and otherwise, found that from “1890 to 1990, the rate of return on residential real estate was just about zero after inflation.” Or as Nobel prize-winning Columbia University economist Edmund Phelps puts it: “It used to be that the business of America was business. Now the business of America is homeownership.” He adds, “To recover and grow again, America needs to get over its ‘house passion.”‘ I delve into these issues in greater depth in The Great Reset.
Housing prices continue to fall nationally but the economic impacts of the crisis are being felt unevenly across the country. Housing values are off roughly a third from their peak in mid-2006, according to the Case-Shiller Home Price Index. Phoenix and Las Vegas have taken the biggest hits, suffering declines of more than 50 percent in the past year. Miami, San Diego, L.A., and Tampa have also been hard hit. Detroit has seen housing prices sink to mid-90s levels. Housing prices have declined less significantly in greater D.C., Chicago, Seattle, Atlanta, New York, Portland, Boston, Denver, Dallas, and Charlotte. But the Case-Shiller data only covers 20 large metro regions.
This week, I take a look at how housing prices have fared across the full set of more than 300 American metropolitan areas. The posts are based on statistical analysis by my colleague Charlotta Mellander. Today and tomorrow, I’ll look at how housing prices have fared since their 2006 peak. Later in the week, I’ll look at the relationship between housing prices and incomes and wages.
The graph below compares housing prices in 2009 to their 2006 baseline price. It’s based on “residual analysis,” comparing the change in housing prices between 2006 and 2009.
Clearly, the two are related – the correlation is 0.903 and the R2 is 0.815. But the slope of the fitted line suggests that, on average, housing values in these regions have dropped by approximately 15 percent. Metros above the line have lost less value than their 2006 worth would predict, while those below the line have lost more.
Under-performers: These are regions where housing values have slipped even more than predicted. Among large metros, the under-performers include: Los Angeles (where values are off $79,789 more than expected based on the national trend), San Francisco (-$79,029), Las Vegas ($-72,421), Phoenix (-$69,897), and Miami (-$53,021). Cape Coral, FL saw the biggest relative decline (- $111,797), followed by Riverside, CA (-$103,683), Sacramento, CA (-$91,640), and Sarasota, FL (-$82,353). Akron, OH (-$59,635) and Lansing, MI (-$57,574) also saw significant declines. Housing values were down slightly more than would have been expected in Atlanta (-$27,413), Chicago (-$16,580), and greater D.C. (-$14,411). 2009 data for Detroit were not available.
Over-performers: The analysis turned up a number of over-performing regions. By that I mean regions with housing values performed better than expected relative to the national trend. Over-performers include: Honolulu (where housing values remain $160,414 more than expected), Boulder ($72,172), Salt Lake City ($68,935), Seattle ($61,997), New York ($58,407), Raleigh, NC ($57,552), Portland, OR ($42,173), Baltimore ($39,896), Austin ($38,181), Philadelphia ($29,011), Boston ($13,644), Houston ($8,693), and Dallas ($5,661).
Stay tuned for more tomorrow.
Writing in The Atlantic, I argued that the economic crisis was reshaping America’s economic geography, with big city centers and mega-region hubs like New York City, talent-rich regions like greater D.C., and college towns weathering the storm relatively well, while Rustbelt cities and shallow-rooted Sunbelt economies being much harder hit.
Take a look at the graph below from the newly released SP/Case-Shiller Home Price Index for April.
Phoenix and Las Vegas have taken the biggest hits: Housing prices there have declined more than 50 percent in the past year. Miami is next, then Detroit where housing prices have sunk to mid-90s levels. San Francisco is the only significant talent region to be pummeled. Part of this is to be expected given the tremendous run-up in housing prices there, but still prices remain higher than 2000 levels. San Diego, L.A., and Tampa have all seen declines in excess of 40 percent.
Housing prices have declined less significantly in greater D.C., Chicago (hub of the great Chi-Pitts mega-region and a magnet for regional talent), Seattle (a high-tech, high human capital center), Atlanta (a talent hub for the southeast), New York, Portland, Boston, Denver – (talent hub for the Rockies), Dallas (a mega-region hub), and Charlotte (which along with Atlanta hubs the great Char-lanta mega-region). Cleveland breaks the pattern, but like Detroit its absolute housing values have fallen. Prices in greater D.C., along with Denver, Dallas, and Cleveland, were actually up in April.
The Index also tracks prices in terms of their 2000 baseline. Nationally, it’s at 140, meaning housing prices remain 40 percent higher than in 2000, more or less in line with 2003 prices. Looked at it this way, the geographic pattern could not be more striking.
Rustbelt cities have seen, by far, the biggest declines relative to 2000 prices. Detroit and Cleveland are the only two cities where housing values have slipped below 2000 values – Detroit at 69 percent and Cleveland at 98 percent.
Prices have just about fallen back to 2000 levels in Sunbelt cities like Phoenix (105), Atlanta (105), Las Vegas (112), Dallas (115) and Charlotte (118). 
Miami (145) and Tampa (140) break the pattern; their prices remain significantly above 2000 levels. My guess is that prices will continue to fall and sharply in these two markets in the coming months.
But prices in prices in Boston (146), L.A. (149), greater D.C. (167), and New York (170) remain significantly above – 50 to 70 percent above – 2000 levels. While these prices may dip some, my hunch is these markets will not be devastated and will remain substantially above 2000 levels.
The SP/Case-Shiller Index suggests that housing prices are still falling and have another 30 or more to go before they hit bottom. One thing you can be sure of, it will continue to be felt unequally across regions.
Felix Salmon says there’s no end in sight for the housing bust, pointing to the latest edition of the Case-Shiller Home Price Index. Housing prices are off 36 percent since their 2006 peak. Housing prices have fallen back to 2002 levels in nominal terms but, as Business Week’s Prashant Gopal notes, they’ve plunged to 2000 levels when adjusted for inflation. Calculated Risk (with great graphics as usual) predicts another 10-20 percent drop,
Regional differences remain pronounced. Phoenix and Las Vegas are down more than 50 percent from their peak values, while Dallas is off only 11 percent. Dallas, Denver, Boston, Charlotte, and New York appear to be holding up best. New York prices remain 73 percent above their 2000 levels, Detroit’s are nearly 30 percent below – in line with their 1995 levels.
