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Inter-regional home price dynamics through the foreclosure crisis

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  • Francisca Richter
  • Youngme Seo

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.

Suggested Citation

  • Francisca Richter & Youngme Seo, 2011. "Inter-regional home price dynamics through the foreclosure crisis," Working Paper 1119, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwp:1119
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    References listed on IDEAS

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    1. 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).
    2. Karl E. Case & Robert J. Shiller, 1987. "Prices of single-family homes since 1970: new indexes for four cities," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 45-56.
    3. Jordan Rappaport, 2005. "The shared fortunes of cities and suburbs," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 33-60.
    4. 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.
    5. Ryan R. Brady, 2011. "Measuring the diffusion of housing prices across space and over time," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(2), pages 213-231, March.
    6. Hartley, Daniel, 2014. "The effect of foreclosures on nearby housing prices: Supply or dis-amenity?," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 108-117.
    7. 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.
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    Keywords

    Housing ; Housing policy ; Foreclosure;

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