Housing - Prices ; Federal Reserve District, 8th

Craig P. Aubuchon

Subhayu Bandyopadhyay

English

Research Papers in Economics

d i s t r i c t   o v e r v i e w
Decline in House Prices Slows Down;
District Still Faring Better than Nation
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.
MISSOURI
ILLINOIS
ARKANSAS
TENNESSEE
KENTUCKY
MISSISSIPPI
INDIANA
Memphis
Little Rock
Louisville
 St. Louis
By Craig P. Aubuchon and Subhayu Bandyopadhyay
continued on Page 20
18   The Regional Economist  |  April 2010
I
n the fourth quarter of 2009, Eighth District house prices, as measured by the Federal Housing 
Finance Agency (FHFA), fell by only 0.4 percent from the previous quarter, a much slower rate 
than the 1.7 percent decline between the second and third quarters.  However, compared with 
prices from a year earlier, the decline was 2.3 percent, the largest year-over-year decline since the 
collapse of the housing bubble in late 2007. 
Despite the fact that these declines were 
the largest of the current episode, the Dis-
trict housing market as a whole continued 
to outperform that of the nation.  Aggre-
gate house prices in the District did not 
increase as much as the nation’s during the 
boom, and the subsequent decline has been 
milder.  The District also reached its house 
price peak nearly a year after the nation and 
maintained prices near the peak for another 
year.  This pattern held for the majority of 
major Metropolitan Statistical Areas (MSAs) 
within the District; they experienced an 
average decline from peak of less than 3 per-
cent.  In contrast, some of the largest MSAs 
in the country experienced price declines 
greater than 30 percent through the fourth 
quarter of 2009.
Eighth District Outperforms the Nation
Figure 1 shows the growth in house prices 
for the nation and the District since 2000.
1  
The FHFA index tracks the repeat sales of 
homes that are financed with conforming 
mortgages from Fannie Mae or Freddie Mac.
2   
By this measure, house prices for the United 
States peaked in the second quarter of 2007, 
with 70 percent growth since 2000.  Since 
then, the largest two price declines have come 
in the third quarter of 2008 and 2009, and by 
the fourth quarter of 2009, prices were only 
50 percent higher than they were in 2000.
In contrast, the aggregate prices for 
the District did not reach a peak until the 
first quarter of 2008 at a relative valuation 
much lower than that of the United States 
as a whole.  Equally notable, District house 
prices declined by a much smaller percent-
age from their peak.  Indeed, in the first 
quarter of 2009, house prices declined by 
less than a half percent.  It was only in the 
last two quarters of 2009 that house prices 
began to move lower, albeit at a rate that  
was slower than that for the nation as a 
whole.  It is no surprise, then, that since  
the first quarter of 2008, the large majority  
of District MSAs performed better than 
the nation as a whole with regard to price 
changes on a yearly level.  The primary 
exception was Fayetteville, Ark., which saw 
similar price declines as the nation over this 
time period but exceeded the U.S. decline  
on several occasions.
Comparing the Rise and the Fall 
among Eighth District MSAs
Figure 2 tells a somewhat surprising story 
for the District.  The regions with the largest 
house price increases were not necessarily 
the regions with the largest declines.  Indeed, 
those regions with strong population growth 
or employment growth might expect natural 
increases in house prices, in line with fun-
damental valuations.  Other regions expe-
rienced large price declines, despite below 
average increases in prices since 2000.  
Fort Smith, Ark., experienced the largest 
increase in house prices between the fourth 
quarter of 2008 and the fourth quarter of 
2009 (which was the peak for the Fort Smith 
area.  Jefferson City, Mo., was the only other 
District MSA to experience a peak in the 
fourth quarter).  During that period, prices 
increased 1.8 percent; as shown in Figure 2, 
prices rose 45 percent since 2000, slightly 
above the District average of 40 percent.  
Without a decline in house prices, the Fort 
Smith metro area easily outperformed the 
district average of a 3 percent decline from 
the peak to the fourth quarter of 2009.  Other 
MSAs that fared better than the District 
average in terms of growth to peak (from 
Q1.2000) and decline since peak (to Q4.2009) 
include Little Rock, Ark., (43 percent 
increase, 1.3 percent decline) and Pine Bluff, 
Ark., (46.8 and –1.3 percent, respectively).
Conversely, Fayetteville, Ark., experi-
enced the largest decline in house prices E N DNO T E S
  1  The Eighth District housing price index is 
calculated as the average of the 18 MSAs that 
report house price data, weighted by popula-
tion in each MSA.  The 18 MSAs are: Fayette-
ville, Ark.; Fort Smith, Ark.; Hot Springs, 
Ark.; Jonesboro, Ark.; Little Rock, Ark.; Pine 
Bluff, Ark.; Texarkana, Ark.; Evansville, Ind.; 
Bowling Green, Ky.; Elizabethtown, Ky.; Lou-
isville, Ky.; Owensboro, Ky.; Columbia, Mo.; 
Jefferson City, Mo.; St. Louis, Mo.; Springfield, 
Mo.; Jackson, Tenn.; and Memphis, Tenn.
  2  In contrast, the S&P/Case-Shiller index 
tracks homes that are also financed using 
larger or more unconventional mortgages.  
Furthermore, the S&P/Case-Shiller index is 
value weighted, so that more expensive homes 
influence the index more heavily; the FHFA 
index is unit weighted, so that regions with 
more housing units are more influential in the 
index.  For a more detailed description, see 
Aubuchon and Wheelock.
  3  The 10-City Composite index is considered a 
snapshot of U.S. house prices, particularly in 
larger regions.  The Composite 10 index was 
used as a baseline in the Supervisory Capital 
Assessment Program (bank stress tests) con-
ducted by the Federal Reserve in early 2009. 
R E F E R E NC E
Aubuchon, Craig P.; and Wheelock, David C.  
“How Much Have U.S. House Prices Fallen?”  
Federal Reserve Bank of St. Louis’ National 
Economic Trends, August 2008, p. 1.  See 
http://research.stlouisfed.org/publications/
net/past/2008/
 
The Regional Economist  |  www.stlouisfed.org   19
SOURCE: Federal Housing Finance Agency
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figure 1
FHFA House Price Index
SOURCE: Federal Housing Finance Agency
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figure 2
SOURCE: Federal Housing Finance Agencye c o n o m y   a t   a   g l a n c e
Eleven more charts are available on the web version of this issue.  Among the areas they cover are agriculture, commercial 
banking, housing permits, income and jobs.  Much of the data is specific to the Eighth District.  To go directly to these charts, 
use this URL:  www.stlouisfed.org/publications/re/2010/b/pdf/04-10data.pdf
U.S. AGRICULTURAL TRADE FARMING CASH RECEIPTS    
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NOTE:  On Dec. 16, 2008, the FOMC set a target range for 
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INFLATION-INDEXED TREASURY YIELD SPREADS RATES ON FEDERAL FUNDS FUTURES ON SELECTED DATES
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CONTRACT MONTHS
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REAL GDP GROWTH CONSUMER PRICE INDEX
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NOTE:  Each bar is a one-quarter growth rate (annualized); 
the red line is the 10-year growth rate.
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February
CPI–All Items
All Items Less Food and Energy
from the peak, at 10.1 percent.  This price 
decline was on par with major metropolitan 
areas like Washington, D.C., (9.1 percent), 
New York (12.1 percent), Boston (13.1 per-
cent) and Chicago (14.1 percent).  Within 
the District, Fayetteville also experienced 
the second-largest price increase, of nearly 
57 percent between the first quarter of 2000 
and the local peak in the second quarter of 
2007.  Other cities that exceeded the average 
price increase and experienced greater than 
average price declines were St. Louis (51.4 
and –5.3 percent); Texarkana, Ark., (46 and 
–4.2 percent); Hot Springs, Ark., (65.5 and 
–4.9 percent) and Elizabethtown, Ky., (49.3 
and –3.2 percent).  
In contrast, only Memphis, Tenn., lagged 
the District average in terms of house price 
growth and exceeded the District average 
for price declines.  With price appreciation  
of only 27.7 percent, Memphis was the fifth-
slowest growing MSA in the District; how-
ever, the relative price decline of 5 percent 
was the second-largest decline, behind only 
that of Fayetteville.
District Relative to Top 10 Metro Areas
Figure 3 presents the FHFA data for the 
four largest District MSAs alongside the 
10 MSAs that define the S&P/Case-Shiller 
10-City Composite HPI.
3  In this view, 
the District MSAs’ price increases and 
decreases between 2000 and 2009 seem to 
match only those of Denver.  Furthermore, 
this comparison reveals that the differences 
in performance among the District MSAs 
paled in comparison to the differences in 
performance among these 10 large non-
District MSAs.  Overall, the MSAs of the 
District exhibited lower price fluctuations 
compared with several non-District MSAs.  
This experience suggests that when consid-
ering the performance of Eighth District 
house prices, it is important to consider not 
just the differences between District MSAs, 
but also consider the performance as judged 
against the nation as a whole.  
Subhayu Bandyopadhyay is an economist and 
Craig P. Aubuchon is a senior research associ-
ate at the Federal Reserve Bank of St. Louis.  
See http://research.stlouisfed.org/econ/bandyo-
padhyay/ for more on Bandyopadhyay’s work.
continued from Page 18
20   The Regional Economist  |  April 2010

Decline in house prices slows down; district still faring better than nation

http://stlouisfed.org/publications/pub_assets/pdf/re/2010/b/district_overview.pdf

Decline in house prices slows down; district still faring better than nation

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