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Inter-regional home price dynamics through the foreclosure crisis

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  • Francisca G-C Richter
  • Youngme Seo
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    Abstract

    Overall regional conditions such as employment, geography, and amenities, favor the co-movement of housing prices in central cities and their suburbs. Simultaneously, over half a century of sprawl may induce a negative relation between suburban and central city home prices, with central city values falling relative to suburban home values. What happens to the relationship between subhousing markets when cities are shocked by the foreclosure crisis? This paper builds repeat-sales indices to explore home price dynamics before and after the foreclosure crisis in the Cleveland area, a market that in the aggregate had little home price appreciation prior to the crisis, but significant follow-up depreciation. The analysis finds evidence that connectedness, expressed as the relative importance of neighboring housing market conditions in explaining city home prices, increases among submarkets even as they experience varying levels of foreclosure rates, and that foreclosure effects give little sign of receding in the near future. The analysis is relevant to the discussion of economic recovery among city and suburban communities as the nation faces high inventories of soon-to-be foreclosed properties.

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    File URL: http://www.clevelandfed.org/research/Workpaper/2011/wp1119.pdf
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    Bibliographic Info

    Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 1119.

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    Date of creation: 2011
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    Handle: RePEc:fip:fedcwp:1119

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    Related research

    Keywords: Housing ; Housing policy ; Foreclosure;

    This paper has been announced in the following NEP Reports:

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    1. Giorgio Canarella & Stephen M. Miller & Stephen K. Pollard, 2010. "Unit Roots and Structural Change: An Application to US House-Price Indices," Working papers 2010-04, University of Connecticut, Department of Economics, revised Dec 2010.
    2. Jaison R. Abel & Richard Deitz, 2010. "Bypassing the bust: the stability of upstate New York's housing markets during the recession," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 16(Mar).
    3. Karl E. Case & Robert J. Shiller, 1987. "Prices of Single Family Homes Since 1970: New Indexes for Four Cities," NBER Working Papers 2393, National Bureau of Economic Research, Inc.
    4. Rangan Gupta & Stephen Miller, 2012. "The Time-Series Properties of House Prices: A Case Study of the Southern California Market," The Journal of Real Estate Finance and Economics, Springer, vol. 44(3), pages 339-361, April.
    5. Jordan Rappaport, 2005. "The shared fortunes of cities and suburbs," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 33-60.
    6. Ryan R. Brady, 2007. "Measuring the diffusion of housing prices across space and over time," Departmental Working Papers 19, United States Naval Academy Department of Economics.
    7. Daniel Hartley, 2011. "The effect of foreclosures on nearby housing prices: supply or disamenity?," Working Paper 1011, Federal Reserve Bank of Cleveland.
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