A new University of Virgina study shows how very spiky it is:
Their analysis shows that most foreclosures have been concentrated in California, Florida, Nevada, Arizona and a modest number of metropolitan counties in other states. In fact, they claim that “66 percent of potential housing value losses in 2008 and subsequent years may be in California, with another 21 percent in Florida, Nevada and Arizona, for a total of 87 percent of national declines.” …
Although there are pockets of substantial declines, claims that overall housing values have tanked nationwide are exaggerated, they said. “In the Washington, D.C. metropolitan area, for example, prices have barely changed in the District of Columbia, Alexandria and Arlington County, and parts of Fairfax County in Virginia …
The number of foreclosures usually were lower in central cities than in some suburban counties, probably due to less demand in those suburbs…
Here are maps, tables for metro areas, and the full study.
March 2nd, 2009 at 9:35 am
Interesting study. It seems to suggest the accepted relationship between value/income and distressed markets is not so clear. Why does San Francisco, which has a value-to-income ratio triple the national average, have a foreclosure rate that is 1/3 the national average? Thoughts on why that would be?
March 2nd, 2009 at 12:22 pm
Kevin: My offhand guess would be that San Francisco and other large cities are disproportionately populated by households with no children. This increases the amount of after-tax income that can be spent on housing before you have a hard time making ends meet.
March 2nd, 2009 at 12:43 pm
OK, one more: the aggregate is too large. San Francisco is not one property market–Nob Hill, the Mission, that’s the size you need to be looking at.
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.
March 2nd, 2009 at 1:09 pm
Oregon has climbed into the top ranks of states, but Portland hasn’t. Lots of foreclosures in Bend, which is Central Oregon retirement country. 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. As with other “super-star cities” the more urban parts of the state are holding up pretty well.
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.
March 2nd, 2009 at 1:58 pm
“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.”
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.
March 2nd, 2009 at 4:11 pm
The majority of the people who really overextended themselves (except in Miami) wanted two things: Big and Cheap. These properties are only found in the exurbs. The demand created boom towns with absurd price inflation. These houses have little value because of poor locations, infrastructure and commute times.
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.