Once-Hot U.S. Housing Markets

House Prices and Existing Home Sales. During the second quarter of 2007, four of those top five states recorded the steepest year-over-year declines in appreciation rates, according to the OFHEO's House Price Index (HPI). All five states recorded 20-percentage-point declines in the HPI within two years. Two of the states, Nevada and California, showed actual drops in home prices versus a year earlier.

Four of these five states also saw some of the largest year-over-year declines in existing homes sales in the second quarter of 2007, according to data from the National Association of Realtors. In fact, with the exception of Hawaii, the rest were among the top six for declines in home sales.

Housing Variables
(Percent change, year-over-year)

Employment. Overall job growth has also downshifted during this two-year stretch, particularly so in several of those housing boom states. The two sectors most affected by the housing bust are construction and finance. States such as Nevada and Arizona, which experienced significant construction activity during the boom, now have an excess supply of housing that needs to be absorbed before more can be built. This has caused construction payrolls to plummet. In many cases, though, the construction sector is being bolstered by record amounts of nonresidential activity, which is helping to soften the downturn.

The finance sector includes institutions such as banks and credit unions (which provide loans), as well as mortgage brokers and real estate agents. As the number of homes being sold in these states recedes, job growth in these fields is losing steam, although not yet turning outright negative.

Sector Employment
(Percent change, year-over-year)

The housing boom played a very large economic role in these five states for several years, and each is now being hurt by the bursting of the bubble. At the national level, the housing market is not expected to recover until sometime next year. For these five states, however, the recovery may take even longer. Still, they remain among the economic growth leaders in the nation, and the hangover from the housing bust should be short lived.