Boom or Bust: Will Metro Areas Bounce Back?

Over the past three decades, about 40 percent of housing busts in big metro areas have eventually been followed by strong recoveries.
BusinessWeek: REALTOR® Magazine Online
If you own a home in a metropolitan area affected by the current boom-bust cycle, should you sell or sit tight?

BusinessWeek analyzed boom-bust patterns and concluded that over the past three decades about 40 percent of housing busts in big metro areas have eventually been followed by strong recoveries.

In an additional 15 percent of markets, prices adjusted for inflation barely got back to their previous peaks after 15 years. In the remaining 45 percent or so of markets, prices adjusted for inflation were still down a decade-and-a-half after their pre-bust peaks.

The disparity between winners and losers was striking: Among the winning markets, the average inflation-adjusted gain after 15 years was 43 percent, while among the losers the average inflation-adjusted loss was 19 percent.

A key difference between winners and losers is the difficulty of building new houses. The cities with the tightest housing usually boom again after a bust. But in places where the supply of housing is more flexible, price cycle corrections are usually mild.

There’s only a wrenching change when demand sharply decreases, usually because of employment-related issues. The only real potential losers, according to this theory, appear to be those places like Miami, Phoenix, and Las Vegas, where demand has been driven largely by speculators.