Posted on Tuesday, January 11, 2011
A report conducted by a professor at the Rockefeller Institute of Government in New York and sponsored by the Mortgage Bankers Association paints a dire picture for the future of struggling neighborhoods and cities.
A Study of Real Estate Markets in Declining Cities analyzes the recession’s impact on real estate markets in cities in the midst of a severe and persistent economic decline. It includes statistical analysis of trends in United States metropolitan areas over the past 40 years.
The study found that substantial home price deterioration occurs in markets hardest hit by population declines and unemployment. Such declines bring about a reduced
housing demand, and 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 primary goal of this paper is to offer insights on the potential future evolution of real estate markets in cities that are in the midst of a severe and persistent economic decline. Typically, a declining city is one that suffers a major loss in population owing to a dramatic reduction in its employment base,” said Dr. James R. Follain, who conducted the research.
He continued, “These are cities that lost comparative advantage in the production of a manufacturing product like automobile or steel but the newly identified declining cities are places that grew substantially during the housing boom and are now experiencing unprecedented declines in home prices and increases in foreclosures.”
Follain warns the viability of cities such as these is threated by the current economic state and potential homebuyers should be aware of these issues, particularly if they are trying to avoid areas plagued by high foreclosures, vacancies and deteriorating housing stock. Follain estimates both home buyers and lenders will lean toward avoiding such areas.
DS News, By Joy Leopold