What housing bust?
During the past three years, home prices grew in the beer-guzzling heartland and fell in the wine-sipping coastal states.
NEW YORK (CNNMoney.com) -- If you're a beef-eating, beer-guzzling, pick-up driving resident of heartland America, there's a good chance you escaped the housing bust. But pesto-chomping, chardonnay-sipping, hybrid-driving city-slickers were probably out of luck.
Over the past three years, 23 states recorded home price gains in the majority of their metro areas, according to analytics firm Fiserv. And where were most of those gainers? In much of the so-called heartland: the South, the Plains and most of the non-coastal West.
Meanwhile, the 16 states that posted declines were led by much of New England and the Northeast, plus California, Florida, Nevada and Arizona.
Most telling, however, was that the 12 remaining states -- those that posted mixed results in their metro areas -- were found in every region of America.
And even in the mixed results states, such as New York, the bust hit "blue" metro areas, like New York City and Long Island (both down 21.7%), and spared "red" upstate cities. Buffalo prices grew 8.3%, Syracuse climbed 8.4%, Utica gained 10.4%, and Binghamton was up 17.7%.
The states where metro markets rose generally share two characteristics, according to Mark Fleming, chief economist for First American CoreLogic: low prices and open space.
"In markets with a lot of developable land, volatility is much reduced," he said.
That lack of volatility meant house prices did not skyrocket during the boom, which left them less likely to crash after the bubble burst.
In bubble markets, such as California and Florida, many homebuyers struggled to afford homes when prices were experiencing double-digit growth. As a result, they tapped exotic mortgage products -- sub-prime hybrid ARMs, interest-only loans, option ARMs -- to get in the door.
These mortgages often proved disastrous once home prices stopped growing. Defaults multiplied, bank repossessions soared and home prices, as a consequence, nose-dived.
In contrast, home prices remained more affordable in states where land was available. That's because the constant influx of supply kept demand -- and thus prices -- more in check. Homebuyers did not need to resort to toxic mortgages and there was little real estate speculation because price gains were too modest to make "flipping" profitable.
Texas is the poster child for these "steady Eddie" states. House prices during the past three years rose in all 26 metro areas with gains ranging from 2.8% for Dallas, the second largest metro area, to 9.7% in Houston, the largest, to a whopping 32.5% in Odessa.
Texas illustrates that housing markets show considerable "elasticity of supply," according to Fleming. When demand -- and prices -- for housing go up, developers can, quite quickly, build new homes to meet that need -- if there's land available. That quick response tends to prevent prices from running away as supply increases to meet demand. Texas real estate in a nutshell.
Of course, that also means sprawl. And a lot of it.
Some states, Illinois being a prime example, contain both types of markets. There, home prices in most markets rose while Chicago, the largest market -- and the the one most lacking developable land -- absorbed a 25.2% decline.
While places such as Manhattan and San Francisco have natural restrictions on growth -- both are essentially surrounded by water -- some cities, especially in the Northeast and the West Coast, have artificially restricted growth.
Those policies are meant to promote density in core areas, preserve nearby green space and eliminate sprawl. Urban planners of smart growth cities intend the policies to foster an exciting, more urban lifestyle, while facilitating easy access to outdoor recreation and nearby food sources.
Portland is the shining example of smart growth. In 1973, Oregon passed an urban growth boundary law, which required that each of the state's municipalities set a line in the sand on which open land could be developed.
The policy is credited with fostering Portland's excellent reputation as an attractive, livable city -- but it may have been too successful. Population growth has been so robust that some residents have complained about too much congestion in its core. And some building has been pushed out into nearby areas, such as in adjacent Washington, that have less strict policies.
Meanwhile, the home price in Portland recorded a more than 86% gain from 2000 through the middle of 2007. The median, at $255,000 during the second quarter of 2009, is well above the national average of $174,000.
In contrast, a Texas city like Dallas, for example, which is practically an anti-Portland, recorded only 26% appreciation over the same period.
The most notable exceptions to the Budweiser/Beaujolais divide are Midwestern cities where economic turmoil has played havoc with housing markets. Ohio and Michigan, the two states hit hardest by auto-industry job losses, both had many more cities record losses than gains.
In Ohio, only the smallest and least industrialized metro areas, Weirton-Steubenville and Lima gained over the 36 months. Meanwhile, the heavy industry cities of Toledo, Youngstown and Cleveland produced big losses.