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j.p. moczulski The Globe and Mail

One of the reasons U.S. policy makers failed to see the financial crisis coming was because they misread the housing market.

In 2005 and 2006, U.S. treasury secretary John Snow said repeatedly that there was no such thing as a national housing market. Home prices were dictated by local factors, Mr. Snow and almost everyone else believed. That's why troubling signs in places such as Florida and Arizona didn't register as an issue worthy of national attention.

We know now that Mr. Snow and others were severely mistaken. They missed that the United States was in the grip of a home-buying frenzy, driven by cheap credit, an explosion of securitization, and shoddy lending standards. It was a national bubble, and prices plunged in concert across the country.

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But did this disprove the notion that housing markets are local? Maybe not. Securitization is dormant, and lending standards are far stricter – perhaps even too much so. This has removed the froth from the U.S. housing market. And with the froth removed, the U.S. housing market is beginning to look again like a collection of local ones.

Take a look at the latest S&P/Case-Shiller index of home prices in 20 major U.S. cities.

The 20-city index declined 3.5 per cent in February from a year earlier, an improvement from a 3.9 per cent annual drop the previous month. Over all, the U.S. housing market is in poor shape, although a moderating in the pace of decline suggests a bottom is forming.

But unlike over the past couple of years, this is no longer a uniform story of national decline. The February drop was influenced heavily by a massive 17.3 per cent plunge in home prices in Atlanta. Chicago, Las Vegas, and Cleveland also experienced sizable drops. Yet in Denver, Detroit, Miami, Minneapolis, and Phoenix, prices were higher on the year. On the month, prices rose in 11 out of the 20 cities, led by a 2.1 per cent jump in Phoenix.

This shift has important implications for policy. A few years ago, a national housing strategy would have been appropriate: everyone everywhere was suffering for essentially the same reasons. Now, that's not so clear. Prices are on the rise in Miami, driven to a significant degree by purchases from Brazilians and Canadians. Cranes dot the skyline of Washington, a city that mostly avoided the housing bust. A national program aimed at clearing foreclosed properties in places like Atlanta could further stoke markets that already have regained strength.

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