How Did Some Housing Markets Bypass the Bust?

With all the negative news and lackluster market indicators, it may seem as though the entire country is neck-deep in the worst housing slump most of us have ever seen. But a new study by two officials at the ""Federal Reserve Bank of New York"":http://www.ny.frb.org indicates otherwise. They've concluded that much of the United States has been largely insulated from the boom-and-bust volatility of the most recent residential real estate cycle.

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""The research report"":http://www.newyorkfed.org/research/current_issues/ci16-3.html, written by Jaison R. Abel, an economist at the New York Fed, and Richard Deitz, a research officer in the bank's microeconomic and regional studies division, focuses in on the stability of upstate New York's housing markets specifically.

The authors explain that during the nation's housing boom of 2000 to 2006, home prices in upstate cities, such as Buffalo, Rochester, Syracuse, and Utica did not appreciate as rapidly as the national average. Since then, home prices in every upstate metro area have risen faster, or fallen more slowly, than the national average.

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""Despite upstate's long-term weak economic growth and population loss, Buffalo, Rochester, and Syracuse all ranked in the top 10 percent of metro areas in terms of home price appreciation in 2009, with Buffalo ranking sixth overall,"" the authors wrote.

Abel and Deitz observe that the region's relatively low incidence of nonprime mortgages and the better performance of these so-called risky loans contributed to the area's stability.

According to the researchers, the skirting of the bust isn't confined to just upstate New York. They say a surprisingly large number of markets across the country â€" that didn't ride the lofty price wave of the last decade and had little subprime lending â€" have been fortunate enough to do the same.

""Most U.S. metro areas actually experienced more moderate increases in house prices than the nation between 2000 and 2006,"" Abel and Deitz said. ""In fact, 249 of the 383 metropolitan areas tracked by the Federal Housing Finance Agency saw price increases below the national rate of 8.1 percent during the boom.""

As a result, the researchers say, many of these markets escaped the debilitating bust that soon followed. In addition, like upstate New York, most of the markets shirked the subprime lending trend.

""It is likely that causation runs in both directions â€" an increase in nonprime lending led to more significant home price appreciation [in boom markets], and more rapid home price appreciation led to a rise in nonprime lending,"" the authors wrote in the report.