Thursday, January 22, 2009

Why Are the Nation’s Worst Housing Markets in the Exurbs?

Housing Wire has a list of the 20 worst housing markets in the United States, as measured by the percentage of homes which are worth less than their mortgages. Here are Google satellite photos of the worst 4:

#1 Zip 95391, Mountain House, CA. You can read more about this unfortunate place in this New York Times article.


#2 Zip 89166 (Clark County, NV):


#3 Zip 89178 (Clark County, NV):


#4 Zip 95742 (Sacramento County, CA):


See a pattern? All of these are new developments at the outskirts of suburban areas.

There is a theory that the collapse of these nascent communities is attributable to high gas prices (see this post in Econbrowser and this article in Muninet Guide, for example). That might have been a contributing factor, but it’s not the primary problem.

The primary problem is one of vintage. In a developed neighborhood, only a small percentage of homes sell and are refinanced in any given time period. In a new development, everyone buys and finances in a relatively compressed time frame. These communities all hit the market during the peak of the underwriting craziness, so a much higher percentage of homes in these areas ended up overleveraged.