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Where housing bust hits hard

In many metro areas, far-flung suburbs and exurbs face sharp declines in home prices.

By Staff writer of The Christian Science Monitor / May 21, 2008

SOURCE: CEOs for Cities, using home-price estimates from Zillow.com/Rich Clabaugh–STAFF

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Although America's housing downturn has rippled nationwide, its impact varies greatly by geography – right down to individual streets, developments, and ZIP Codes.

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In many metro areas, far-flung suburbs and exurbs face sharper price declines than neighborhoods closer to city centers.

It's no secret, for example, that Florida is among the states where property prices flew high and fell hard. But in Tampa's ZIP Code 33607, near downtown, the median home lost just 1.3 percent of its value last year, according to new research. ZIP Code 33573, in contrast, lies about 18 miles away and saw a 22 percent price decline.

The housing bust is also falling heavily on low-income and minority neighborhoods. That's not just a story of borrowers with a weak ability to pay. The larger story, another new study finds, is that lenders made a headlong rush to extend credit where it was least warranted.

What links these trends is that in both zones – the exurbs and low-income communities – the housing market peaked with lots of new loans and with lenders stretching the limits of sound finance. Now, these geographic patterns are partly defining the nature of America's economic slowdown and could also influence policies designed to heal the housing market.

"You had a lot of first-time buyers," says Rick Sharga, a vice president of RealtyTrac in Irvine, Calif. "They bought ... an overvalued property with a risky loan."

One factor, in the exurbs, is this decade's home-building boom. Housing developments that were showing off brand-new units in 2006 now see multiple foreclosures. The land available for these developments was generally in exurbs or at the urban fringe.

"There was a mad rush [by builders] to bring housing supply on line," says Stan Humphries of Zillow.com, an online provider of real estate information. "Where you can do that is at the perimeter."

In hard-hit southern California, it's places like Riverside and San Bernardino – far outside Los Angeles – where subprime loans are heading into foreclosure at about twice the national rate. In L.A. itself, foreclosures aren't far above the national average, according to data from First American CoreLogic.

Washington State, although relatively unscathed in the housing downturn, shows a similar pattern. Snoqualmie, well outside Seattle, has seen home prices fall 10 percent in the past year, while some downtown neighborhoods are up in price, by Zillow's estimates.

It's not just vacant and foreclosed properties dragging prices down. When housing cycles cool, Mr. Humphries says, close-in neighborhoods often hold their value better. "All things equal, people would prefer to be closer in to the urban core" for the amenities and shorter commutes, he says.

Gasoline prices may be playing a special role in the current cycle, some analysts say.

A cause-effect relationship can't be proved, but gains in home prices began slowing as gas moved above $2 per gallon and beyond, according to one new report called "Driven to the Brink."

Rising energy prices pinch all consumers and thus have some effect on the housing market in general. But gas prices have bigger implications for the value of homes far from a city center.

"Where there was any kind of consistent pattern, it was the case that the further you went from downtown, the greater was the decline in housing prices," says Joe Cortright of consulting firm Impresa, who conducted the study for the group CEOs for Cities.

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