What goes down, must come up…I think it goes something like that? Peter Coy’s Boom! Bust! Boom? Check the history of housing busts. Some areas bounce back more strongly than others [BW]. The article deals with the concept of how quickly a market can return from a downturn.
How common is this boom-bust-boom pattern? Over the past three decades about 40% of housing busts in big metro areas have eventually been followed by strong recoveries. That’s according to a BusinessWeek analysis of inflation-adjusted housing prices. In an additional 15% of markets, prices adjusted for inflation barely got back to their previous peaks after 15 years. In the remaining 45% or so of markets, prices adjusted for inflation were still down a decade and a half after their pre-bust peaks.
According to Edward L. Glaeser, a Harvard University economist, whose work I admire especially his paper: Why is Manhattan So Expensive? Regulation and the Rise in House Prices [pdf] bases his thinking on restricted supply.
Markets with more zoning restrictions, less available land an other supply restrictions, may see more volatility in pricing, but are more likely to bounce back more quickly. In other words, although these markets may be more expensive to begin with but they generally have less speculation and more restrictive land use controls. As a result, they tend to bounce back sooner.
This article presents yet another argument as to why the US housing market cannot be looked at as one broad market despite the oversupply and high demand for articles that do just that.