Meet the Author

Kyle Fee |

Economic Analyst

Kyle Fee

Kyle Fee is an economic analyst in the Research Department of the Federal Reserve Bank of Cleveland. His research interests include economic development, regional economics and economic geography.

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Meet the Author

Daniel Hartley |

Research Economist

Daniel Hartley

Daniel Hartley is a research economist in the Research Department of the Federal Reserve Bank of Cleveland. He is primarily interested in urban/regional economics and labor economics. His current work focuses on crime, public housing, and neighborhood housing market dynamics.

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Economic Trends

Wide Variation in House Price Decline across the Country

Kyle Fee and Daniel Hartley

Since the peak of the housing market, which occurred in mid-2006 according to the Case-Shiller 10-city and 20-city composite indices, housing markets across the United States have seen large declines in home prices.  However, some areas have fared much worse than others.

We look at variation in the size of the price declines, both across different Metropolitan Statistical Areas (MSAs) and within each MSA.  We measure the growth rates of housing prices over the past six years using repeat sales indices. The data cover March 2006 to March 2012, and we report all growth rates in real terms.  The indices are computed using nondistressed transactions of attached (condo, townhome) and detached single-family homes.

Housing price growth rates for the 61 MSAs that had a population of one million or more in 2000 show a large amount of variation.  While prices dropped by more than 50 percent in Las Vegas, Riverside, Sacramento, and Orlando, prices fell by less than 10 percent in Buffalo, Pittsburgh, Austin, and Oklahoma City. Some of the biggest declines have occurred in warm-weather MSAs that saw large increases in prices prior to the peak.  Some of the smallest have been in places where the economy has been less adversely affected by the downturn, such as Texas and Oklahoma.  Interestingly, there is quite a bit of variation in older northern MSAs.  While prices have fallen by about 50 percent in Detroit and about 30 percent in Cleveland, they are down by much less in Rochester, Pittsburgh, and Buffalo.

While housing price growth rates have varied substantially across MSAs over the past six years (the standard deviation is about 14 percentage points), they varied much more during the boom period from 2000 to 2006. Depending on the price measure used, standard deviations of growth rates in those years were 33 to 42 percentage points.

Variation in House Price Growth Rates across Metro Area

  Standard deviation (percentage points)
  FHFA Case-Shiller

Notes: For the FHFA data, we use all 384 MSAs that are available in the data. For Case-Shiller data, we use the 20 MSAs for which Case-Shiller reports an index.
Sources: Federal Housing Finance Agency; S&P, Fiserv, and Macromarkets, LLC.

In addition to variation in price declines at the MSA-level, there is also variation from neighborhood to neighborhood within each MSA.  On average, housing price growth rates had a standard deviation of about 7.5 percentage points at the zip-code level within MSAs from 2006 to 2012.  This is lower than the 14 percentage point standard deviation across MSAs from 2006-2012, and is also lower than the standard deviation at the zip-code level within MSAs from 2000–2006 (18 percentage points).  So, while prices have fallen at different rates in different neighborhoods over the past six years, these differences have been less pronounced than those across MSAs. They are also less pronounced than differences across and within MSAs during the boom period (2000-2006).

One way to look at the variation in growth rates within MSAs is to compare zip codes with different income levels in 2006.  Sorting incomes into ten groups (deciles) within each MSA and comparing the mean growth rate of the second through the tenth decile to the first decile reveals that on average the second through the seventh decile experienced bigger percent drops in home prices relative to the lowest income decile, while the ninth and tenth deciles (the highest-income zip codes) experienced smaller price declines than the lowest income decile.  In other words, high-income zip codes experienced smaller drops in housing prices on average than middle-income zip codes. The drops were several percentage points smaller.

Over the past six years, housing prices have dropped a lot more in some MSAs than in others.  While price declines have varied less within MSAs and less than during the housing boom, the within-MSA variation is associated with differences in average neighborhood incomes. On average, neighborhoods that were at the upper end of an MSA’s income distribution have not seen as big of a percent decline in home prices as those in the middle and near the bottom of the distribution.