Each Real Estate Market's Different

Highlights include Citigroup, Inc. (C - Analyst Report) and JPMorgan Chase & Co., Inc. (JPM - Analyst Report), Bank of America Corp. (BAC - Analyst Report) and Hudson City Bancorp (HCBK - Analyst Report).

Realtors will tell you that every real estate market is different. While there is some truth to that, the decline we are seeing in housing prices is very broad-based.

The graph below (larger version available at http://www.calculatedriskblog.com/) shows the decline from peak levels in each of the 20 markets followed by the Case Schiller index. Every market is off by at least 10%, but it is clear that Dallas, Charlotte and Denver have been holding up the best so far. On the other hand, seven areas -- more than one third of the markets -- are down more than 40% from peak levels.

Phoenix is in ashes with a decline of more than 50%; time will tell if it can live up to its name and rise again. What is striking is that the three cities where Finance is the most prominent industry -- New York, Boston and Charlotte -- are all towards the least damaged end of the spectrum.



So is there anything we can tell from the pattern of price declines across these different markets? Was it a question of how big the bubble was in the first place? Perhaps -- Dallas was the second-least-bubbly market based on its peak CS index level of 126.47, and Charlotte was number four at 135.88 (all the indexes equaled 100 1/2000). Cleveland (123.24) Detroit (127.05) and Atlanta (136.47) round out the remainder of the non bubbly quartile, and only Detroit is down more than 40% from its peak.

A strong case can be made that given the troubles of the Auto industry that it is a special case. Cleveland and Atlanta have fared somewhat better than most cities, but not by a huge margin. On the other hand, the most bubbly markets are well represented in the biggest declines from peak group. Miami was the most bubbly with a peak index value of 280.87, followed by L.A. (273.94), Washington D.C. (251.07), San Diego (250.34) and Tampa (238.09). Three of those cities are in the down over 40% club and Tampa seems to be applying for membership.

In addition to the top five, four other cities had peak index values of over 200, and three of them are in the down 40% club (Phoenix, Las Vegas and San Francisco). New York is the one anomaly there. It is the one true bubble market that has not popped hard.

In general, the hardest-hit markets also hit their peaks earlier than the ones that have held up better. Four cities peaked out in late 2005, of which only Boston is holding up better than most. San Diego, San Francisco and Detroit were the other early peakers.

Five cities, on the other hand, did not hit their peak until the summer of 2007 -- Charlotte, Portland, Seattle, Dallas and Atlanta -- all of which are clustered towards the least affected end of the graph. Are they just behind the curve?  I suspect that may be the case.

I suspect that the New York market is the most vulnerable at this point. The Pacific Time Zone cities have already seen most of the damage done. Dallas, Charlotte, Atlanta and Denver never got too out of hand on the upside. New York, and to a lesser extent Boston, did experience full-scale bubble pricing, but have yet to really feel the pain.

This would be very bad news to banks with big exposures to those two markets. Citibank (C - Analyst Report) and J.P. Morgan (JPM - Analyst Report) have very large presences in New York, and Bank of America (BAC - Analyst Report) has a big share in Boston. However, perhaps the most vulnerable would be a smaller bank like Hudson City Bancorp (HCBK - Analyst Report).