NCPA - National Center for Policy Analysis


November 9, 2006

Real estate, like politics, is said to be a local business.  Any broker worth her salt can easily come up with reasons that the malaise currently gripping the national housing scene doesn't affect her particular local market -- because of its excellent public schools or the lack of supply or the easy commute it affords.

Are the brokers right?  Is housing a single national market or a collection of hundreds of small markets?  The answer, as one might expect economists to say, is both, says columnist Daniel Gross.

According to Robert J. Shiller, a professor of economics at Yale University:

  • Housing is becoming more of a national market and an international market than in the past.
  • While huge price increases have been confined to particular areas, like Las Vegas, Vegas-like attitudes are popping up among homeowners in places like Milwaukee.
  • In this boom, he said, national attention has been drawn to the real estate market.

An evolving credit culture has also helped forge a national housing market. 

  • Instead of getting mortgages from local banks, as they did 20 years ago, people all over the country get mortgages from capital markets, said Mark Zandi, chief economist at Moody's
  • That means that access to credit and interest rates don't vary much across the country.

Yet in many ways the market remains intensely local.  Last month, issued a report that examined the prospects for housing in 379 metropolitan markets.  Over all, the consulting firm expects home prices to fall by a small increment in 2007.  But there's wide variation.

About 100 of the 379 metro areas will experience some kind of measurable price decline, and they together make up about half the nation's housing stock, Zandi said.

Source: Daniel Gross, "All Housing Markets Are Local, Except When They're Not," New York Times, November 5, 2006.

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