Will The Housing Bust Create New Rust Belts? The South and West may become the Rust Belts of the 21st century, according to a new study from the Mortgage Bankers Association. It says the economies in these regions — in places like California and Florida — may never fully recover from the burst of the housing bubble.
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Will The Housing Bust Create New Rust Belts?

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Will The Housing Bust Create New Rust Belts?

Will The Housing Bust Create New Rust Belts?

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A new housing study offers a grim forecast for some parts of the West. It says areas hit hardest by home foreclosures may never fully recover. As NPR's Karen Grigsby Bates reports, that raises big questions about the future of some neighborhoods that spring up during boom times.

KAREN GRIGSBY BATES: This is something that's happening way too infrequently these days.

NORRIS: Cedar-lined closets, lots of built-ins, fabulous walk-in pantry.

GRIGSBY BATES: That's realtor Jody Velto showing potential clients a vacant single- family home in Upland. It's in San Bernardino County, one of California's hardest-hit. And like everywhere else, Upland's prices dipped in the past few years.

Now, buyers slowly are coming back, looking for amenities these her husband, Bill, also a broker, is outlining.

NORRIS: Granite counter tops to travertine flooring, stainless steel appliances.

GRIGSBY BATES: Bill Velto says this neighborhood has fared comparatively well because of its location, just east of L.A. County. It's a reasonable commute, and for some the price makes the drive worth it.

NORRIS: Well, you know, back in the old day it was go west, my friend, go west. Now, it's kind of go east, my friend, go east, because of the values.

GRIGSBY BATES: This house, which listed a few years ago for over $900,000, sold that day for around $500,000. But in many parts of the country, a sale like this is the exception to the rule.

A new study commissioned by the Mortgage Bankers Association's Research Institute for Housing America looked at how plummeting real estate values are dragging down several American cities.

NORRIS: The story's not over, but my sense is the demand drop is significant and persistent, and for some of these places it will be a long time before they fully recover.

GRIGSBY BATES: Jim Follain, an economist and senior fellow at the Rockefeller Institute of Government in Albany authored the study. He says the current housing downturn is reminiscent of the erosion of several industrial cities in the North and Midwest.

NORRIS: Well, I think we believe that there might be some insights about the current situation by looking at what I call traditional declining cities, which you think about some of the places in the Rust Belt.

GRIGSBY BATES: In other words, Stockton, California, and parts of Fresno, and many newly-built desert communities in Arizona and Nevada seem to be headed where Detroit is now: full of housing that is standing empty.

And Follain says just as it's taken decades for some Rust Belt cities to recover, the same could be true of parts of the country that have suffered severe housing slumps.

The current housing mess has adversely affected the American economy for the long term says John Wasik, author of a book called "The Cul-de-Sac Syndrome."

NORRIS: I think the real estate market, at least in residential areas, in some of the worst-hit areas, especially in, say, Central and Southern California, are going to be hobbled for at least a generation.

GRIGSBY BATES: Which means no silver lining in the black cloud hanging over housing. It's a grim forecast, especially for many new developments that sprang up during the boom times. Whole communities were constructed on the "Field of Dreams" expectation that if you build it, they will come, especially when financing a house was about as easy as financing a car.

Those days are long gone. But John Wasik says hard-hit areas will continue pay a huge price for those easy money mortgages.

NORRIS: Many people finance without any down payment at all. So those are the people who had no economic stake whatsoever in staying in those properties, and subsequently became, you know, part of the foreclosure process.

GRIGSBY BATES: Today it's possible to find a good deal where there used to be none. But the uncertainty of where prices are headed makes buyers and lenders hesitant, which deepens the problem, says economist Jim Follain.

NORRIS: And that's the fear, I think, that, you know, will my neighborhood be one that is going to be particularly slow to recover.

GRIGSBY BATES: Being able to choose a neighborhood that will thrive may mean life or death for a number of American cities going forward.

Karen Grigsby Bates, NPR News.

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