The Relationship Between the National Housing Market and Local Markets Is Breaking Down—and Opportunities Are Cropping Up for Well-Heeled Buyers. Here’s What You Need to Know


Michael Rubenstein For the Wall Street Journal The Rybski family recently sold their home in Mendham, N.J., and bought a much larger one across town for $1.025 million. The upgrade is costing them just $800 more a month.

Is housing headed for a dreaded double-dip? Or are signs finally pointing to a long-awaited rally?

Despite the glum statistics recently, well-heeled buyers in many markets should feel comfortable betting on the latter.

Home prices nationwide in December were down more than 31% from their 2006 peak, according to the latest Standard & Poor’s/Case-Shiller index, including a 4.1% fall in 2010. And some economists see more weakness ahead, based on the so-called shadow inventory of foreclosures that haven’t yet been put up for sale.

View Full Image

Keith Webb

But the national housing market is merely a collection of local markets. And while those markets have moved together to an unusual degree during the past 15 years or so, new data show that the pattern is changing—and that many markets are safer now than they have been in years.

Before the recent housing boom, local and national prices in the 14 biggest markets had a slight negative correlation, meaning some markets tended to zig as others zagged, says Robert Shiller, an economist at Yale University and co-creator of the Case-Shiller index. From 1997 to 2006, however, “correlations became very close for nearly all [14] cities,” he says, as a rising tide lifted most boats.

Correlations are still quite high by pre-1997 standards, but they are weakening. In the first quarter of 2009, for example, median prices for existing-home sales declined from the previous year in 134 of 152 metropolitan statistical areas, according to the National Association of Realtors. By contrast, in the fourth quarter of 2010, median prices rose in 78 markets, fell in 71, and were unchanged in three.

David Blitzer, chairman of the index committee at S&P Indices, says the breakdown in correlations “is a positive sign we are moving out of the boom-bust cycle.”

Even within metro areas, there are growing divides. In some markets, such as upscale Greenwich, Conn., sales and prices are picking up closer to the downtown area even as more moderately priced homes in adjoining neighborhoods languish on the market, says Jeffrey Jackson, chairman of Mitchell, Maxwell & Jackson Inc., an appraisal company in New York. In other regions, such as the Midwest, the situation is reversed, with starter homes and “distressed sales” such as foreclosures in demand but trade-ups and retirement townhouse sales stalling.

“There is no consistency,” says Lawrence Yun, chief economist of the National Association of Realtors. “In one quarter, a market may see a price increase and the next quarter a price decrease.”

There’s good reason to be skeptical of the national statistics. The NAR’s quarterly price data are based on median sale prices and can be skewed by sales of higher- or lower-priced homes when there are few transactions, experts say. The Case-Shiller index is based on repeat sales of specific homes, which some argue is a more accurate measure—but it is limited to only the 20 biggest markets.

Local Market Monitor Inc., a real-estate research company based in Cary, N.C., that ranks local housing markets for banks, investors and builders, combines the best of both. It takes repeat-sales prices compiled by the Federal Housing Finance Agency across 315 housing markets and compares them with the “equilibrium prices” that can be sustained by local economic conditions. Then it ranks markets accordingly.

Five Signs That Say ‘Buy’

Jameson Simpson

The national housing market still seems shaky, but what about your area? The following yardsticks can help you gauge whether your neighborhood is poised for a comeback.


Some parts of the country were less affected by the recession than others. Prospective buyers should review job-growth data from the U.S. Bureau of Labor Statistics, at Unlike many backward-looking economic statistics, jobs data are only about a month old and can “clearly show the direction of the local economy,” says Carolyn Beggs, chief operating officer of real-estate data provider Local Market Monitor Inc. The National Association of Home Builders also posts state and local employment data, at

You also want to see a brightening personal-income picture for the previous six-month period. Those numbers are available via the U.S. Dept. of Commerce’s Bureau of Economic Analysis, at


Three factors should be taken together: housing inventory, sales volume and prices.

A large inventory of homes with few actual transactions are negative indicators, according to Jeffrey Jackson, chairman of Mitchell, Maxwell & Jackson Inc., an appraisal company in New York. On the other hand, if inventory is falling and transactions are picking up, that is a good sign.

State and local boards of realtors often publish monthly inventory statistics. Inventory breakdown by metro area also can be found at the U.S. Census Bureau’s website, in the American Community Survey ( Be sure to compare current inventories with long-term averages.

Also, check out the rental vacancy rates in your area, and judge them against historical rates, which you can find at the Census Bureau’s website ( or via local real-estate professionals.


While not as reliable as jobs or sales-trend data for getting a read on a local housing market, the number of permits recently issued for local builders is useful for gauging builder sentiment and, by extension, future housing activity.

You can get recent permit information from your county or municipal building department, or via the National Association of Home Builders (


If you live in an area where most people use mortgages, it is especially important now to gauge local lending patterns. In the aftermath of the financial crisis, most national banks tightened lending standards. But some local banks haven’t been hit as hard by the housing crash and are more willing to lend, even for higher-priced homes.

For instance, some smaller lenders in the New York and New Jersey area, such as Lake Success, N.Y.-based Astoria Federal Savings, are actively courting new “jumbo”-mortgage customers. Astoria Federal says it believes jumbo-loan borrowers pose less risk than other borrowers because they can demonstrate ample income and often opt for hefty down-payments.


It might sound old-fashioned in an era of electronic data, but driving around neighborhoods, checking out open houses and talking to local agents still are good ways to gather local-market intelligence.

The key is to do this kind of research only after you have gathered hard data, so that you don’t misread the signs. For example, foreclosed homes can generate multiple bids and quick sales, often in all-cash deals—but that doesn’t mean the market is healthy.

—M.P. McQueen

LMM’s latest data, released Thursday, suggest the worst of the housing bust is over in most areas. The firm rated just 21 markets as “frankly dangerous” in February, down from 31 in August. It ranked 20 markets as speculative, 259 markets as posing “typical” risks and 15 as suitable for conservative investors, from 37, 222 and 25, respectively, in August.

“For the vast majority, we are seeing a much more normal situation,” says Carolyn Beggs, chief operating officer at LMM. “Home buyers shouldn’t have the fear they would have had three years ago.”

Despite the broadly positive signs, however, buyers still need to exercise caution, for there are vast differences across various metro areas—and sometimes from one part of town to another.

Is the Worst Over?

In the Northeast, prices in financial centers such as New York and Boston are benefiting from the Wall Street rebound, and in many neighborhoods prices are either bottoming or gaining modestly, according to LMM. Washington is seeing a slow recovery in home prices thanks to relatively stable government employment.

The metro Philadelphia area saw prices decline just 0.5% the fourth quarter of 2010 over the previous year, far better than the national average. Optimism is spreading: Building permits for single-family homes rose 8% in 2010, far better than the 3% rise nationwide. But the dividing line is stark: In nearby Allentown, Pa., which has suffered high foreclosure rates during the bust, permits plunged 22% in 2010.

“Philadelphia is an established East Coast city that didn’t have a lot of overbuilding during the boom, so its bust was less painful than somewhere like Allentown, which was one of the growing areas in Pennsylvania,” says Robert Denk, senior economist at the National Association of Home Builders.

In the Southeast, the pain is much more widespread. Florida cities such as Orlando, Jacksonville and Daytona still are struggling from foreclosures, high inventories, unemployment and a weak second-home market. In Orlando, ranked by LMM as a “frankly dangerous” market, prices declined 8.1% in 2010. Jacksonville declined 7.3%, while Daytona was down 5.6%.

California, meanwhile, is a hodgepodge. In some cities, prices are recovering faster than in many other parts of the U.S., largely because of population growth. In San Diego, prices increased by 0.1% in 2010; in Los Angeles, prices were flat. The San Jose-Sunnyvale-Santa Clara area, near Silicon Valley, saw a 2.2% rise.

Dianne Hartnett, a Re/Max real-estate agent in downtown San Diego, says sales have been “surprisingly” brisk for condominiums, which typically start at about $575,000. “There hasn’t been a lot of new construction and there won’t be for a while, and that is healthy for the downtown market,” she says.

The situation is quite different in Central California, a hotbed of foreclosures. LMM ranks Fresno, for instance, as “frankly dangerous,” with prices having fallen 5.5% in 2010. Rental vacancy rates there surged from 3.8% in the first quarter to 11% in the fourth, according to the U.S. Census Bureau, thanks to a spike in foreclosed homes now available for rental. In Los Angeles, by contrast, vacancy rates fell to 6.2% in the fourth quarter from 8.4% in the first quarter.

Las Vegas, Reno and Phoenix continue to cast a pall over much of the Southwest. All three remain on LMM’s “frankly dangerous” list, with prices having fallen by 5.9% in Las Vegas, 10.3% in Reno and 8.9% in Phoenix.

Yet some Texas cities, such as Austin, Dallas and San Antonio, are much healthier. The region largely escaped the boom and bust—and employment has held up better thanks to the thriving oil industry. In San Antonio, for example, prices rose 0.7% in 2010.

The Midwest remains sluggish, with its biggest market, Chicago, down 0.3% in 2010. Paul Wells, a Re/Max broker in nearby Barrington, Ill., says prices and sales overall in Chicagoland appear to be stabilizing but are better for low-cost housing than for more expensive homes.

“More people are looking in the upper price ranges than last year at this time,” Mr. Wells says, “but sales above $1 million last year were still about 10% below what they were in 2009.” By contrast, sales of homes priced under $1 million increased 10%.

The Wild Card

There is, of course, one wild card that could affect most markets: rising interest rates. A big surge could pose a risk by making homes less affordable. Rates for a 30-year fixed-rate conforming mortgage spiked to 5.13% on Feb. 14 from 5.04% a week earlier, according to the Mortgage Bankers Association.

View Full Image

Michael Rubenstein For the Wall Street JournalRobert and Gail Rybski at their new home in Mendham, N.J.

Since then, however, rates have fallen back below 5% on jitters over the Libya situation.

The best-case scenario might be that rates rise in 2011, but very slowly. That “should encourage people to act soon, before rates get any higher,” says Guy D. Cecala, CEO and publisher of Inside Mortgage Finance Publications Inc., a Bethesda, Md.-based provider of residential mortgage data. In San Francisco, for example, “Rates were going up [in 2010], but it was good because it pushed people to buy,” says Alan Mark, founder of The Mark Co., a residential real-estate consultant there.

Confusing though the various statistics may be, they do point to one overarching conclusion: Now is a good time for upper-income buyers in most markets to start looking.

Consider Gail Rybski, a human-resources executive at a pharmaceutical company, and her husband, Robert, a remodeler. The couple recently sold their home in Mendham, N.J., and bought a much larger one on two more acres across town—a “Norman Rockwell-esque” neighborhood, Mrs. Rybski says.

The couple got a 4.9% 30-year fixed-rate loan for the new house, for which they paid $1.025 million. The monthly nut is just $800 higher, an amount they can easily afford.

Mrs. Rybski says she did much research before taking the plunge. When she added up all of the pros and cons, she says, “We thought this investment was a risk worth taking.”

Related Posts: