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.
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