The “Great Recession” of 2007 to 2009 has taken a great toll on housing markets in most cities and metropolitan areas in all parts of the country. Though the pace and extent of the overall economic recovery of these markets is still far from certain, many places will likely resume growth and fully recover within the next decade or so. This is almost certainly not to be the case for all metropolitan areas. In fact, a number of large metropolitan statistical areas (MSAs) experienced severe recessions during the latter half of the 20th century and prior to the Great Recession and never fully recovered or took many years to do so. Even among those metro areas with relatively bright long-run prospects for growth, certain submarkets within them may remain well below recent house price peaks for many years to come. What is a declining city? Simply put, a declining city is one in which the people have left, but the houses, apartment buildings, offices and storefronts remain. At the extreme, think of a ghost town from the Old West, a town that lost its reason for being. Are there cities or large metro areas in the United States at risk of disappearing back into the desert (or the swamp) today? Probably not, but there are certainly neighborhoods and submarkets within metro areas that have passed a tipping point, and have little prospect of returning to anything close to their previous peaks. Lastly, another type of declining city may also be emerging  places that grew substantially during the housing boom and are now experiencing unprecedented declines in house prices and increases in foreclosures.

The primary goal of this paper is to offer insights on the potential future evolution of real estate markets in cities that are in the midst of a severe and persistent economic decline. Through a review of a massive and interdisciplinary body of prior research, analysis of new empirical evidence on the experiences of many large U.S. metro areas over the past 40 years and a focus on the experiences of seven large metro areas since 2000, including during the Great Recession. A massive and interdisciplinary body of literature, which is reviewed in Section II, offers a variety of answers to this question. The most common notion of a declining city is a metro area that has experienced substantial declines in population and employment.1 Some of these experienced declines because of a loss in their comparative advantage in the production of some key manufacturing product like automobiles or steel. Some cities like Cleveland and Detroit, that fit this traditional notion of a declining city are in the “Rust Belt” region of the United States, but examples of such declining or shrinking cities can be found in other parts of the world like Dresden, Germany. Another type of declining city is generated by natural disasters. The case of New Orleans and Hurricane Katrina is a classic but very recent example.