Declining U.S. Cities and Housing Markets: What Does the Future Hold?

The toll that the recession has taken on the housing market across the U.S. has been significant, but is expected to ease and improve in years to come. Yet some declining cities will not fully recover and have likely reached a “tipping point” from which they cannot bounce back, said a new housing study issued last week by the Mortgage Bankers Association. (MBA)

“A Study of Real Estate Markets in Declining Cities” by James R. Follain, Ph.D., aimed to offer insights on the future evolution of real estate markets in cities that are in the midst of a severe and persistent economic decline. Some cities have been in decline since the 1970s due to a persistent decrease in population and employment or an environmental disaster (such as New Orleans and Hurricane Katrina), but a number of new faltering metropolitan areas (MSAs) have cropped up since the current recession began in 2007.

The study looked at seven declining cities – Albany, N.Y.; Cleveland, Ohio; Detroit, Mich.; Pittsburgh, Pa.; Los Angeles, Calif.; Miami, Fla.; and Stockton, Calif. – and a variety of statistics and research such as housing prices, vacancy data and population patterns were tallied in order to scrutinize these cities’ growth patterns over the past 40 years.

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The study came to a few significant conclusions:

  • Demand will remain relatively low because expectations about future house prices will remain well below the peaks reached in the early 2000.  Housing demand will be hampered by reduced access to mortgage credit and tougher mortgage underwriting criteria.
  • Potential home buyers and home loan lenders will have a tendency to avoid places that appear plagued by high foreclosures, vacancies and a deteriorating quality of housing stock due to deferred maintenance. The flip side is that potential buyers and lenders will favor those markets where upbeat information about the neighborhood’s future vitality is readily available.

“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,” said Michael Fratantoni, MBA’s vice president of research and economics. “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.”

“The fundamental problem facing today’s new breed of declining cities and their neighborhoods seems [to be] … investment and lending are seriously hampered by great uncertainty, which in itself hinders the speed of recovery to the ‘new normal,’” said Follain, in the report. “Better data and analysis will help everyone become more confident of where we are headed. Data that assess these programs should be made more available to a wide range of institutions committed to objective analyses of the programs.”

To obtain a copy of the report, see here.

Written by Clare Pierson

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  • The info used in the studies comes from MSA data but the conclusions are being applied to specific cities. That in itself makes the whole report suspect.

    For example since LA is near and dear to my heart the MSA statistical information that is being used is not just Los Angeles COUNTY but also Orange COUNTY. While the County of Los Angeles has almost 10 million people, the City of Los Angeles is only about 40% of that amount. The whole County of Orange California is a little over 3 million people.

    The City of Los Angeles is in a well defined metropolitan area. The County of Los Angeles stretches out to desert counties and includes a national forest, the second largest US city park, many other city and state parks. Orange County is smaller but also has a national forest and many state and city parks. As to its demographics, the MSA area and the City of LA are extremely diverse. The city has two major US Universities, UCLA and USC along with two state colleges, several private universities and community colleges.

    Applying MSA data to show that Los Angeles is a city in decline is an interesting theory but the article should be discredited for its overreliance on subjective application of MSA objective data gathered from a much larger population and land mass area.

    Stockton on the other hand is a relatively small isolated inland hamlet in northern California. It was and still is the poster child for the housing crisis. 60 Minutes ran too segments on the housing problems in that hamlet. While its demographics are diverse they are NOT nearly as diverse as those of Los Angeles.

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