The housing market slowdown is nationwide, yet it has taken its
earliest toll in Midwestern communities where the word "boom" never
applied to home prices.
Here in the northern Indiana city of South Bend, where "For Sale"
signs sparkle alongside golden foliage in the autumn sun, the median
price of a resold home is $101,000 - less than half the national
Some forecasters say that coastal communities, from California to
the Eastern seaboard, may in the end see the sharpest downturn in
prices. But it is this region, characterized by slow job growth and
gathering problems in the automotive industry, that has stumbled
first. In a business where outright price declines are rare, the
Midwest was the first region in recent years to post a drop in
prices - with median single-family homes down 2 percent in the
second quarter from the same period in 2005.
Is the Midwest leading a national downturn? Prices were still
rising in the South, West, and Northeast, although they too may show
declines when the National Association of Realtors provides third-
quarter numbers this month.
"Those [Midwestern] markets are being affected more by the
economy itself ... particularly job cuts," says Brian Carey, an
economist at Moody's Economy.com, which tries to model where home
prices will go next in US markets. The coasts, by contrast, "had the
largest housing boom ever basically. We're starting to see the
downside come through now."
The regional and city-by-city differences reveal how, in real
estate, it really is "location, location, location" that matters.
In the Midwest, home-price patterns are all about the economy and
jobs. Cities such as Detroit, Cleveland, and South Bend are
struggling even though they never had a big run-up. In other regions
with stronger economies, the housing shift is driven by consumers
adjusting to higher interest rates and by speculators who are now
backing out of the market instead of bidding prices up.
Some economists believe that, with interest rates apparently
stabilizing, the worst of the downturn may be over for most of the
nation. But others, including Mr. Carey, say it's likely that the
great boom will take longer to unwind. From Merced, Calif., to
Naples, Fla., he says many cities could see double-digit price
declines that don't end until late next year or even 2008 and 2009.
The uncertainty is greatest in coastal areas and other hot
markets such as Las Vegas, due to the unusual nature of their recent
"This boom that we just went through in housing prices is
actually unprecedented," says Jeannine Cataldi, a senior economist
at Global Insight. …