Ryan Avent on whether (eventually) falling exurban home prices will keep the exurbs populated:
I don’t actually think that $4 gas is sufficient to render outer ring exurbs vacant and/or slum-like. I do think, however, that economists need to be more careful when casually assuring everyone that exurban home prices will simply fall to the market clearing level, keeping such places occupied and healthy. An economist in the 1950s or 1960s might have said that sustained depopulation of urban centers was an impossibility, since prices should just fall until costs in cities and suburbs equalized. That economist would have been wrong. The combination of price stickiness and feedback loops can wreak havoc in real estate markets.
All true. Detroit is not healthy, and has not been for a long time. About 23% of its housing stock is vacant. But boy, oh boy do markets try to clear:
The Detroit Board of Realtors recently found that home sales in the city (excluding suburbs) in the first two months of this year jumped 48% from a year earlier, to 1,540. The average home price there sank 54% to about $22,000.
Since any structure with a toilet and kitchen sink is worth more than $22,000, Detroit sellers are now paying buyers to take the land underneath their homes. Since $22,000 is the average home price, we can safely assume that many Detroit homes (structure plus land) have a negative value.
And that's ultimately the reason why falling home prices may not clear Detroit's market, even in the long run. Sellers won't pay someone to take a house; they will just walk away. The market-clearing price today is not even on the supply curve.
