Housing Bubble and Bust, Thy Name Is...Midland?

Tim Cavanaugh | June 26, 2009

The so-old-it's-new Federal Housing Finance Agency has an interesting study [pdf] out of previous depreciations in real estate markets.

Expected finding: The rapid-drop pattern of the last three years is, as I noted the other day, historically unusual. Usually the pace of decline is much slower over a long duration (obviously, we don't know when or if current markets will bottom out). Real estate values can take the better part of a decade to find the bottom, and about that long to recover to their prior peaks.

Unexpected (to me) finding: Although California, in a walk, has already taken five of the top ten total-depreciation spots for the period studied, it turns out Midland, Texas still holds the record for longest period from peak to trough:

Home prices in Midland, TX -- the worst [metropolitan statistical area] by duration of house price decline -- lost over 56 percent of their value from the second quarter of 1982 to the fourth quarter of 2000 and have yet to recover 8¼ years later.

Here are the ten biggest losers in total depreciation:

1. Merced, CA (lost 61.95% from peak in 2006Q1 through 2008Q4)
2. Midland, TX (lost 56.15% from peak in 1982Q2 until trough in 2000Q4)
3. Stockton, CA (lost 54.20% from peak in 2006Q1 through 2008Q4)
4. Modesto, CA (lost 52.58% from peak in 2006Q1 through 2008Q4)
5. Lafayette, LA (lost 52.50% from peak in 1982Q3 until trough in 1988Q4)
6. Peoria, IL (lost 48.91% from peak in 1979Q4 until trough in 1985Q4)
7. Salinas, CA (lost 47.50% from peak in 2006Q1 through 2008Q3)
8. Davenport-Moline-Rock Island, IA-IL (lost 47.18% from peak in 1978Q4 until trough in 1989Q2)
9. Cape Coral-Fort Myers, FL (lost 47.02% from peak in 2006Q1 through 2008Q4)
10. Vallejo-Fairfield, CA (lost 45.53% from peak in 2006Q1 through 2008Q3)

How long will Midland hold its place in the real estate Hole of Shame? I don't see Merced picking up anytime soon, but could it really be 2024 before that jewel of the San Joaquin Valley hits bottom? Elsewhere in the piece, FHFA flirts with measuring booms and busts in nominal rather than real dollars, which tends to make the return-to-previous-peak come faster. (That's the only anti-inflation rhetoric you're likely to hear from the government for a long time.) But even if you use that trick, "the time it takes for an area to recover still tends to be longer than the time it takes for the same area to move from peak to trough. Correspondingly, annual depreciation rates in the downturn tend to be of larger magnitude that annual appreciation rates in recovery."

Midland shared in the statewide oil boom of the 1970s and the subsequent oil collapse of the 1980s, which put nearly a quarter-million Texans out of work. The same cannot be said for the biggest clowns of this decade:

[M]ost of the larger historical downturns were caused by sharp increases in unemployment rates and shocks to personal income. Although the U.S. economy has experienced such conditions in the last year, those factors were not among the precipitants of the latest downturn, which began in 2006, well before the financial crisis erupted in the third quarter of 2007 and the recession began in the fourth quarter of 2007.

I vaguely recall a Thor comic from the 1970s in which the god of thunder is given a tour of hell by a grim reaper figure who starts off by whispering, "There is so little to see....and so much time!"

Comments

|6.26.09 @ 6:02PM|#

Ahh, Lafayette, Louisiana rode that same oil boom that Midland, TX did...it was going to be the next biggest city in Louisiana! Oil was so magincal that it was going to turn UofLA-LA (ULALA) and McNeese (Harvard on the Bayou) into something to rival LSU (already low sights!).

And then it all withered away.

Oil is a helluva drug.

|6.26.09 @ 6:05PM|#

Damn it, wasn't McNeese, it was Nicholls that was/is/will remain "Harvard on the Bayou."

And yes, that name was never a compliment.

Bert|6.26.09 @ 6:44PM|#

"And then it all withered away."

Glad it did. The loss of Breaux Bridge, LA would have sucked. One of the greatest places on earth (after Grand Isle, LA of course).

Paul|6.26.09 @ 7:10PM|#

Wai wai wai wai wait a second. Hooooold on just one second there, podner...

I got Bill Maher on my TV set, telling me about the horrors of Detroit, MI. Telling me that houses are going for a stick of gum and a package of Razzles. And the Motor City doesn't even get a mention in the top ten for depreciation?

What that tells me is Bill Maher may be fluffing his statistics, or Detroit has been in the shitter for so long that a pack of Razzles is actually considered a slight uptick.

Xeones|6.26.09 @ 7:13PM|#

What that tells me is Bill Maher may be fluffing his statistics, or Detroit has been in the shitter for so long that a pack of Razzles is actually considered a slight uptick.

Bill Maher is a dick and a half, but my guess would be the second one.

Paul|6.26.09 @ 7:19PM|#

Bill Maher is a dick and a half

So he's depreciated by 25%.

Xeones|6.26.09 @ 7:33PM|#

So he's depreciated by 25%.

I'm not sure -- he's been holding steady, dickwise, for quite a while now.

Tim Cavanaugh|6.26.09 @ 8:19PM|#

I got Bill Maher on my TV set, telling me about the horrors of Detroit, MI. Telling me that houses are going for a stick of gum and a package of Razzles.

The FHFA article has an interesting section on Michigan as the reverse image of Texas. And You're a sucker if you accept payment in both Razzles and gum, because Razzles is a gum (and a candy).

Don Billingsley|6.26.09 @ 8:39PM|#

Yo, Fuck Midland.

mike farmer|6.26.09 @ 8:52PM|#

Calif has only 400% to go to level out.

Polio Robot|6.27.09 @ 4:40PM|#

As a former resident of Midland, Texas during the oil boom days, getting a kick, etc.

Sam Houston Elementary
San Jacinto Junior High
Edison Freshman High (Now Midland Freshman High)

Midland High School Class of '80

George Bush may have lived there but he didn't go to school there or live there very long.

Charles Kinbote|6.28.09 @ 3:44AM|#

These cities share a common feature - I'd rather die than live in any of them.

Twba|6.28.09 @ 10:29AM|#

Davenport-Moline-Rock Island

The Quad Cities depreciated down to the Tri Cities.

jtuf|6.28.09 @ 12:54PM|#

I live in the suburbs of New York City. My town had 11,000 - 12,000 people in 1980. Today, it has 10,000 - 11,000 people, mostly due to declining family size. At the last council meeting, the council balked at the idea of allowing affordable housing. They said they didn't want to pay for kids from affordable housing units in their school districts. So, instead of growing in population, the town is slowly and steadily declining. It's kind of macabre watching the town I've lived in for 28 years slowly decay from the inside as the town elders congratulate themselves for legislating this demise.

|6.28.09 @ 10:11PM|#

All this talk of bubbles and busts has me wondering if we're talking about an economic crisis or an overworked plot for a porno.

Art-P.O.G.|6.29.09 @ 1:12AM|#

Tulpa,

Can it be both?

|6.29.09 @ 9:38AM|#

Michigan is still waiting for a trough.

ChrisO|6.29.09 @ 5:31PM|#

If I recall correctly, the California housing bubble of the late '80s also burst rather suddenly, and then clattered along the bottom for a number of years until starting to pick up steam in the late '90s. Prices may not have reached bottom overnight, but the bulk of the drop occurred quickly.

This housing bubble seems different mostly in size and scope, not in quality. Actually, the documented history of asset bubbles goes back hundreds of years, and they all follow mostly the same pattern, AFAIK.

On the other hand, I don't see prices rising again anytime soon. How could they? Lots of people and institutions are tapped out, and use of reasonable lending standards would never have permitted the bubble to happen in the first place.