District OverviewHousing ; Housing - Prices ; Federal Reserve District, 8th

Maria E. Canon

Mingyu Chen

English

Research Papers in Economics

16   The Regional Economist  |  January 2012
district overview
The Eighth Federal Reserve District is composed of four zones, 
each of which is centered around one of the four main cities: 
Little Rock, Louisville, Memphis and St. Louis.   
House Prices in the District and in 
the Nation Follow Similar Pattern
By Maria E. Canon and Mingyu Chen
T
he housing crisis has been milder in the 
Eighth District than in the nation, but 
since early 2009 house prices in the District 
and nation, as measured by the CoreLogic 
Home Price Index (HPI), have followed 
a similar pattern.  As Figure 1 shows, the 
boom in house prices before 2007 and the 
bust afterward were milder in the District 
than in the nation.  The house prices in the 
District had a modest upward trend and 
peaked in February 2007; in the nation, 
house prices increased at an accelerated 
rate and peaked in March 2006.  Once the 
housing bubble burst, prices in the District 
decreased by 11.8 percent in the two years 
from peak to trough; nationwide, house 
prices started to drop in 2007 and reached 
their first trough 37 months after the peak, 
falling 29.4 percent along the way.
Starting in February 2010, both sets of 
prices rose for about six months but at a 
slower pace (about 2 percent year-over-year 
growth rates) than during the bubble days.  
This reversal in price change was short-lived; 
house prices soon decreased again.  Since 
May 2011, both sets of house prices have 
declined at relatively lower rates, which 
indicates evidence of a possible recovery.
In the District’s Four Major MSAs
Within the District, there have been 
notable variations in house prices.  As 
shown in Figure 1, the house prices in Little 
Rock were much less volatile than those 
in the other major metropolitan statistical 
areas (MSAs)—Louisville,  Memphis and  
St. Louis.  Little Rock’s growth rate remained 
positive until May 2008, which was 10 months 
after the District’s house prices experienced 
negative growth rates.  Moreover, the 
decline in Little Rock lasted only 14 months 
CoreLogic Home Price Index
FiguRE 1
SOURCE:  Authors’ calculations based on data provided by CoreLogic.
NOTE:  Aggregate house price index for the Eighth District is calculated as the average of the house price indexes of all 18 MSAs covered in the 
District, weighted by population.
and the largest year-over-year decrease was 
4.1 percent, compared with a decline of 28 
months and biggest drop of 7.9 percent in 
the District.  The house prices in Little Rock 
have generally stayed on a modest upward 
trend after June 2009.  As of August 2011, 
Little Rock’s average growth rate in 2011 
was 0.1 percent.
Although the house prices in the rest 
of the major MSAs have closely followed 
the trend of District prices since the last 
recession started, there have been excep-
tions.  Memphis experienced the deepest 
decline.  From their peak in March 2007 to 
their trough in February 2009, house prices 
in Memphis decreased by 19.6 percent, 7.7 
percentage points greater than the District’s 
rate of decline over the same period.  Before 
the second downturn, which started in the 
second quarter of 2010, house prices in  
St. Louis had a similar pattern as prices for 
the District overall.  But the St. Louis prices 
then experienced the deepest decline among 
the four major District MSAs, 10.3 percent, 
3.9 percentage points worse than the District 
average over the same period. 
What Might Have Driven  
House Prices?
One important factor in the housing crisis 
has been the increase in distressed sales 
(defined as real-estate-owned and short 
transactions by the CoreLogic HPI).  Figure 2  
shows house prices without distressed sales.  
To infer the impact of distressed sales on  
overall house prices, one can compare the  
change in the index that includes distressed 
sales with the change in the index that 
excludes those sales.  For example, from 
March 2006 to April 2009, while the 
national house prices including distressed 
sales (as seen in Figure 1) declined 29.4 
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District
St. Louis
Memphis
Louisville
Little Rock
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0The Regional Economist  |  www.stlouisfed.org   17
percent, house prices excluding distressed 
sales decreased 20.3 percent.  The difference 
of 9.1 percentage points can be attributed to 
distressed sales. 
Before 2007, the effect of distressed sales 
on house prices in both the nation and the 
District was moderate.  Distressed sales 
added less than two percentage points to  
the growth rates of national house prices  
during the boom and even made a negative  
contribution to that of the District for most 
of this time (–0.2 percent on average).  Dur-
ing the housing bust, however, prices in 
both the nation and the District were largely 
driven by distressed sales.  By including 
distressed sales in the house prices, the peak 
of year-over-year decline rate in the nation 
increased from 11.9 percent to 18.1 percent 
during the first downturn of house prices; in 
the District, the decline rate peak increased 
2.9 percentage points to 7.9 percent. 
Surprisingly, during the short “recovery” 
in the first half of 2010, house prices in both 
the nation and the District declined after 
excluding distressed sales.  The positive 
growth rates that appeared in 2010 were 
mainly driven by distressed sales.  In July 
2010, distressed sales once again drove the 
house prices in the other direction, leading 
to the second downturn. 
The effect of distressed sales on house 
prices is similar across all four major MSAs 
in the District.  However, the impact has 
been more severe in Memphis and St. Louis.   
Specifically, distressed sales reduced year- 
over-year growth in house prices between 
January 2007 and August 2011 by an average 
of 2 percent in these two MSAs, compared 
with 0.9 percent in Louisville and 0.4 per-
cent in Little Rock.
Conclusion
Since July 2010, house prices have 
decreased in the District, including all of 
the major MSAs except for Little Rock.  The 
average monthly year-over-year change 
in house prices between January 2011 and 
August 2011 was –5.2 percent in the Dis-
trict, –8.8 percent in St. Louis, –5.0 percent 
in Memphis, –3.4 percent in Louisville and 
0.1 percent in Little Rock.  If distressed sales 
were excluded, the decline rates would be 
less than half of the above numbers.  One 
possible explanation for the persistent 
decrease of house prices is that the number 
of home sales has decreased.  According  
to the Eighth District’s Beige Book of  
Oct. 19, August 2011 year-to-date home 
sales continued to decline throughout the 
District compared with the same time 
period a year earlier.  The number of home 
sales in the four District regions experi-
enced an average decline of 9 percent in the 
first eighth months of 2011 compared with 
the same period in 2010.   
Maria E. Canon is an economist at the Federal 
Reserve Bank of St. Louis.  See http://research.
stlouisfed.org/econ/canon/ for more of her 
work.  Mingyu Chen is a research associate at 
the Bank.
REFERENCE
The Beige Book (formally known as the Summary 
of Commentary on Current Economic Condi-
tions by Federal Reserve District).  Oct. 19, 
2011.  See www.federalreserve.gov/FOMC/
BeigeBook/2011/20111019/default.htm
CoreLogic Home Price Index without Distressed Sales
FiguRE 2
SOURCE:  Authors’ calculations based on data provided by CoreLogic.
NOTE:  Aggregate house price index for the Eighth District is calculated as the average of the house price indexes of all 18 MSAs covered in the 
District, weighted by population.
FRED® is a registered trademark of the  
Federal Reserve Bank of St. Louis.
     More DIStrICt DAtA 
 
Burgundy Books 
Four times a year, the St. Louis Fed 
publishes the Burgundy Books, one for 
each of the four zones in its District.  
Each book summarizes economic  
conditions in that zone, using data  
from government agencies, for the 
most part.  The Burgundy Books, 
published since 2008, are meant to 
be a complement to the Beige Book, 
a collection of anecdotal data on the 
economies of all 12 Federal Reserve 
districts.  To read the Burgundy Books, 
see http://research.stlouisfed.org/
regecon/district.html  To listen to 
the reports, go to http://www.stlouis 
fed.org/newsroom/multimedia/
audio/20110930-burgundybooks.cfm 
 
the District in FreD® 
Our signature database, Federal 
Reserve Economic Data (or FRED), 
includes nearly 200 charts on District- 
specific data that are updated regularly.  
Want to know the net interest margin 
for banks in the Eighth District?  We’ve 
got the numbers on that.  Need to see 
the trend in personal income in the 
seven states in our District?  We have 
that—and much more.  See http://
research.stlouisfed.org/fred2/ 
categories/133 
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220
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U.S.
District
St. Louis
Memphis
Louisville
Little Rock
J
A
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© ShUTTERSTOCk

The Beige Book (formally known as the Summary of Commentary on Current Economic Conditions by Federal Reserve District).

Local housing crisis is similar to nation's

http://stlouisfed.org/publications/pub_assets/pdf/re/2012/a/district_overview.pdf

Local housing crisis is similar to nation's

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