Study Shows People Move Faster Than Real Estate
The “Great Recession” of 2007 to 2009, as it is being called, has created new, declining cities, according to a recent study.
Some cities may not re-attain home price peaks for many years, and some neighborhoods will cease to be viable economically, according to the study, just released by the Mortgage Bankers Association (MBA).
“A Study of Real Estate Markets in Declining Cities,” conducted by James R. Follain, Ph.D., Senior Fellow of the Rockefeller Institute of Government, and sponsored by the MBA’s Research Institute for Housing American (RIHA), analyzes the recession’s impact on real estate markets in cities in the midst of a severe and persistent economic decline.
The findings confirm a trend that people move faster than real estate — population decline has a disproportionate effect on property values. Results suggest that a 1% decrease in population reduces home prices by 4.32% over three years. Yet, a 1% population increase raises home prices by just 1.8%. High unemployment is a major factor in causing decline, but other factors include the availability of loans, and average household incomes.
Some of the areas most affected according to the study include New Orleans, Buffalo, Detroit, six cities in Ohio–Youngstown, Cleveland, Dayton, Akron and Toledo, three in Pennsylvania – Pittsburgh, Philadelphia, and Scranton, Tulsa, Chattanooga, and Charleston.
The study also confirmed that cities throughout California, Nevada and Florida suffered the largest sustained drops in home values.
“The future viability of these areas may be threatened by recent economic events,” Follain says. “This is a critical point that should be well understood by potential home buyers and lenders who want to avoid places plagued by high foreclosures, vacancies and a deteriorating housing stock due to deferred maintenance. Overall, neighborhood choice is likely to become a more important component of housing decisions in those markets particularly hard hit by the current housing crisis and the Great Recession.”
Michael Fratantoni, MBA’s Vice President of Research and Economics added, “Though the pace and extent of the overall economic recovery of these markets is still far from certain, many places will likely resume growth and fully recover within the next decade or so. This will likely not to be the case for all metropolitan areas, however. Even among those metro areas with relatively brighter long-run prospects for growth, certain segments or submarkets within them may remain well below the peaks reached at the height of the boom for many years to come.”
Key findings from the study include:
Substantial home price deterioration occurs in markets that suffer significant declines in population or employment. Such declines in population and employment trigger reduced demand for housing. Because people are more mobile than houses, it often takes many years for supply and demand to become balanced again and for house prices to return to the levels they achieved prior to the negative economic event.
The impacts among neighborhoods or smaller cities within metropolitan areas experiencing substantial overall decline are likely to be widely disparate and could well threaten the sustainability or long-term viability of some previously stable neighborhoods.
Both home buyers and lenders will have a tendency to avoid places plagued by high foreclosures, vacancies, and a deteriorating quality of the housing stock due to deferred maintenance.
To obtain a copy of the report, please visit the RIHA website at: http://www.housingamerica.org
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