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The housing boom fails to lift all homes above the peak of the previous cycle


The housing boom of the past two years has pushed home prices in the United States to record highs across the country. But in hundreds of cities, the hot market has yet to bring prices back to where they were about 15 years ago.

Prices fell so much during the subprime crisis or rose so gradually in these cities that the current buying wave is only beginning to affect even a homeowner who bought there during the last boom.

The status applies to 477 U.S. cities, where typical home values ​​at the end of April were below peak levels during the early 2000s housing boom, according to analysis by the Zillow Group. Inc.

for the Wall Street Journal.

Home values ​​in Detroit, Flint, Michigan, and Hartford, Connecticut, were among those lower than the peak, Zillow found using its home value estimates. In cities like Chicago, Cleveland and Newark, NJ, typical home values ​​only surpassed their pre-crisis highs for the first time in April. The values ​​in the analysis are not adjusted for inflation, which means that taking inflation into account, the number of houses still below peak levels would be higher.

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Economic recovery since the 2007-2009 recession has been uneven, with some cities thriving with well-paying tech jobs and soaring house prices while others struggled. Even as remote work during the Covid-19 pandemic allowed more workers to live anywhere, the population grew in cities like Austin, Texas and Phoenix, but continued to decline in cities like Detroit and Cleveland.

The laggards represent only a fraction of the overall population, in part because the populations of many cities that have not yet reached their pre-crisis peak are relatively small.

Additionally, more than 400 of the cities have typical home values ​​that are at least 80% of their pre-crisis peaks, Zillow said. That means rising home values ​​could push many above their former highs this spring or summer.

Zip codes below

maximum value

The housing boom fails to lift all homes above the peak of the previous cycle

Zip codes below

maximum value

The housing boom fails to lift all homes above the peak of the previous cycle

Zip codes below

maximum value

Their slow return to former highs, however, highlights the decline or stagnation of a surprising number of American communities.

“The growth since 2006 has largely been growth coupled with growing inequality,” said Susan Wachter, professor of real estate and finance at the Wharton School at the University of Pennsylvania. “For landlords, it was a time of immense wealth appreciation, but in these cities and metros, landlords haven’t participated in it” to the same degree, she said.

The current boom has been unusually widespread, with home prices rising rapidly and buyers competing in bidding wars in big cities and small towns alike. The typical value of a home nationwide was $344,141 in April, up 58% from its April 2007 peak of $218,148, according to Zillow.

But in Detroit, a typical home was valued at $66,015 at the end of April, below the August 2006 peak of $74,180. And in Chicago, the typical April home value of $315,196 is just above the March 2007 peak of $314,917. Particularly adjusted for inflation, some homeowners who bought in these cities during the last spike would still be unlikely to sell at a profit today.

Homeowners in places with slow house price growth have missed out on much of the wealth creation associated with years of housing market gains. Many of them have built up equity by repaying part of the principal of their mortgages. But about 86% of the appreciation in the typical American homeowner’s wealth between 2011 and 2021 came from price appreciation, according to a March study by the National Association of Realtors.

The housing boom fails to lift all homes above the peak of the previous cycle

Postal codes below the maximum value

The housing boom fails to lift all homes above the peak of the previous cycle

Postal codes below the maximum value

The housing boom fails to lift all homes above the peak of the previous cycle

Postal codes below the maximum value

Large disparities in house price appreciation often exist within cities. Areas where home values ​​have stagnated are often areas historically occupied by black homeowners, said Alan Mallach, senior fellow at the Center for Community Progress, which focuses on revitalizing cities and neighborhoods.

In Chicago, a North Side ZIP code near the predominantly white River West neighborhood had a typical home value of $530,586 in April, up 21% from its previous high in 2007, according to Zillow. But a zip code on Chicago’s southwest side near the Little Village neighborhood, which is mostly Hispanic and black, had a typical home value of $214,928 in April, about 40% below its 2007 peak.

Chicago neighborhoods where home prices have lagged have lower incomes and had higher rates of foreclosures and distressed sales in the wake of the housing crash, said senior economist and adviser Maude Toussaint-Comeau. economy at the Federal Reserve Bank of Chicago.

“These areas were the hardest hit, and we saw that they also took the longest to recover,” she said.

Pre-crisis peak prices in some areas were also inflated by subprime mortgages and easy access to credit, said Geoff Smith, executive director of the Institute for Housing Studies at DePaul University.

Cities with lagging housing markets can struggle to generate enough revenue from property taxes, making it difficult to provide city services that attract new residents, Professor Wachter said.

On the other hand, cities with relatively affordable housing are increasingly in demand as house prices continue to hit new highs and mortgage rates climb, said Ed Pinto, director of the AEI Housing Center. ‘American Enterprise Institute.

“They have a lot of housing, and it’s reasonably priced,” he said of cities like Cleveland and Detroit. “How do they make themselves attractive to the working-from-home employee?”

Write to Nicole Friedman at nicole.friedman@wsj.com and Ben Eisen at ben.eisen@wsj.com

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