most certainly the economy tanking has taken a toll on all but the very most affluent neighborhoods, but even there people who were making payments have lost jobs and houses, too. I think that you hit the nail on the head with the last comment. Lax screening and pushing sales to people who were willing to overextend themselves have
contributed to a lot of the problem. (housing bubble)
We moved 5 years ago when the cost of gasoline to commute went over $4 per gallon, cost of living has increased in spite of the fed's claims otherwise. It hasn't increased if you don't count the cost of energy and food...
c'mon! It is a pattern as old as time. areas, , countries, cities are built up, thrive, decline. ( shrugs) good question!

I suppose it depends on why your neighbor said the "the neighborhood was going downhill." What are the symptoms? Are we talking foreclosures in outer suburbs or changing demographics, or a combination?

I think a neighborhood starts to go downhill when people don't take care of their homes and yards. People who do care start to move away. People looking for a home see the homes and yards that aren't taken care of and don't want to buy in the neighborhood unless they are also people who aren't big on upkeep.

How big are the houses?

This is a very specific scenario, but many of the houses on my street are in the 6000 to 10,000 sq foot range and were built between 1830 and 1850. The neighborhood became unfashionable after the Civil War, for the most part.

Since the people who could maintain such large houses no longer wanted to live in them, it was an immediate step down to Boarding House, and the neighborhood collapsed within a decade or so and was a near slum for 100 years.

I foresee this happening to the McMansion neighborhoods when people are no longer interested in them, but they will deteriorate rapidly and not be able to withstand a decade of neglect let alone a century.

The least stability is at the upper end of the market where very expensive houses may end up essentially abandoned, and at the lower end of the market where everyone is walking a financial tightrope.

The most resilient neighborhoods are mixed in income, mixed in housing age and somewhere in the middle in both size and status, where people don't mind living with others who are both obviously more well off and less well off than they are.

One of the things that has contributed to the current financial stability of my zipcode even during the down turn, (prices stayed the same and at some price points rose slightly even in 2008), is that there is a broad demographic, from several houses in the $6M range, to houses that receive subsidies for the people who rent them, to a healthy rental market for students, medical residents and the uninterested in owning a house. And the majority of the individual houses fall into a category of reasonable size and price.

Of course this is an urban neighborhood and this type of financial integration doesn't fly in the suburbs, but it is reflected in many typical towns, as well.

Interesting topic and one which may vary by location.

In our location the "bad neighborhood" syndrome certainly took hold in the inner-city of which I grew up in. Up until about 1980 it was a fabulous place to live and have kids who could safely play without issues. Nowadays it's filled with prostitutes, drugs, gangs and guns. One sure sign was lack of upkeep and frequent visits all around us with the police.

In the burb I last lived in, the surrounding environment of that burb was negatively impacted by low income subsidized housing and a bunch of vacant old retail space. Schools now reflect the NIMBY views along with the realities that come with a decent share of what has become rental housing. My neighborhood was a reflection of that melting pot and as a result of the neighbors and other corresponding issues (no upkeep, not great schools, etc..) we had no choice but to exit once our child was born. The long term outlook was bleak and remains such. During our last few years there, the upkeep was beginning to fade and the juvenile issues were more frequent involving the police. We actually still made money on the house when we sold and we sold fast.

My current burb is nowhere near as big as the one we left behind. My neighborhood is not a wealthy one, perhaps best described as very middle class with a slight lean towards lower middle class (not poor though). That being said, for the most part people to keep things up though I am sensing though things beginning to slide a little in my short time here (4.5 years). History has a way of repeating itself and I've been around it long enough to sense and see it ahead of time. I'm willing to move now, my wife wants to hold out a little longer. We've met half way and have agreed we have 2 more years and out we'll go. Schools remain strong (for now) but the signs in this very neighborhood are once again diminishing upkeep and juvenile issues. I don't plan on waiting until the opportunity to sell has passed and in order to sell we'll need to take a heavy beating on the sale. Trying to stay one step ahead if possible.

This post was edited by dontknow on Mon, Jun 3, 13 at 17:12

Our house sold for around 128k, and we had built a barn on the property. House was two story cape with dormers (1400 sq ft, maybe?) Across the street, two ranch houses. Beside us, mobile home on a slab. the same next to our neighbors. Down the street, and in back of us on a hill, were larger, nicer homes homes.

@Bad neighborhood/inner city syndrome many people blame on residents but in reality it was government policies ('Title 1 or Red-line) and what previously FHA forcing lower income people into previously middle class neighborhoods and preventing person A from getting a mortgage in Zip code xxxxx and only persons B to get a mortgage in Zip code xxxxx.
Unfortunately, a neighborhood is based on the following characteristics:
- economics/average per capita income (which typically matches # of owners vs. renters)
- education/school district scores (whether desirable or not neighborhood for new residents and what type of new residents)
- local economy is it based on one company, multiple sources or long commute to a metropolitan area? (if the one company leaves or lay-offs a high percentage of residents will it result in owners foreclosing, selling or renting to anyone who can pay rent)? Think of Detroit in this bullet.
- crime (which is typically a result of the combined above)
- last item is whether the town has surplus or deficit as failing school, roads, police, library, fire department can also diminish desirability of a neighborhood and its ability to attract new business/jobs

Sadly, many people believe a neighborhood is a result of its residence but those residence are attracted to a neighborhood due to availability. Too expensive prevents riff-raff but too cheap attracts poorer immigrants and gangs as limited police intervention

I would put crime on the top of the list. Economy second. Those two are the chicken and the egg scenario. The two go hand in hand.

I have watched working class neighbourhoods degrade quickly. Traditional ethnic neighbourhoods collapse as second generation Canadians moved out and those that can afford to live there choose not to due to those homes not having the luxuries available elsewhere thus leaving those homes to those who chose to turn them into income rentals. Therefor a lack of pride in ownership, lower mean incomes, perhaps less than what most would consider good parenting and bingo crime rates rise and property values stagnate or drop. Those that could never afford home ownership where able to buy in 2006 then found just because one qualifies for a mortgage doesn't mean one has any disposable income at the end of the day. How does one choose between repairing a soffit, replace a roof to buying flowers to plant vs. buying Kraft Dinner. ( I like Kraft Dinner ) I believe this was and still is the basic formula for neighbourhoods going " downhill " for centuries.

I heard recently of a friends elderly neighbour letting the lawn grow a foot high. She didn't have enough cash to put gas in her broken down lawnmower where she paid to have her lawn done weekly before this, what do the politicians call it? Economic downturn, more like the new depression.

This post was edited by SouthernCanuck on Sat, Jun 8, 13 at 1:34

I believe crime is further down the list way below economic conditions of the neighborhood and here is why:
Crime makes news story in an upper class neighborhood as it is abnormal. We know crime happens everywhere in every neighborhood but upper class folks don't like to be disturb with it or have it lower their image so cops are called in, etc.
e.g. Beverly Hills

Middle class neighborhood also may make a news story but not as shocking as upper class.
e.g. Irvine

In lower class or depressed neighborhood - it barely makes the news as it is expected. That doesn't prevent more criminals from setting up shop.
e.g. Watts or Compton

We must keep in mind in the US many neighborhoods and their social economic were forecast by US government policies after WW2 and it is no shocker that interstates/highways (Interstate Highway Act) cut through previously good neighborhoods and some inner cities are predominately one group or another. Until you have a renaissance those communities will attract crime and less than ideal living conditions resulting in unattractive housing market for outsiders and businesses. No business owner wants to risk opening shop in a poorer or increasing crime neighborhood if they can pay a little more in rent and have business in the 'good' part of town unless it is fast food or church.
The next biggest attribute to neighborhood downfall in the US - is companies/business relocate to cheaper or elsewhere. E.g. We have heard of Walmart killing a downtown or example Schenectady, NY which was HQ of GE until they moved elsewhere and it went from one of the most desirable destinations in NY to one of the most depressing (never able to turn itself around). Most of the mid-west cities follow the exact trend of losing a big employer footprint while continually receiving low-educated residents looking for employment/future. You are left with uneducated folks without money in a place with little upward opportunity.

A family with no job and kids will probably foucs on some type of illegal activity to obtain $$$ eventually (even if they can hold out for a long time) or some dependency (gambling, drugs, gangs) to escape their desperate condition.

Link below to a book that studies decline of neighborhoods in Chicago over 20 years.

Here is a link that might be useful: neighborhood decline

The biggest problem as far house prices going downhill is when something happens in your area say within a block in any direction.
Such as someone dying and the house going to probate, going to a family member that can not make the mortgage until it sells for a reasonable price.
A person has to move for a job and HAS to sell quick so sells house for well under market value.
Loses job and same reason etc.
Goes to foreclosure and then auctioned off for 2/3rds of its real value.

Every time a house sells for under market value your house drops in value because of how the so called "appraisers" value a house for the banks.
They could obviously not careless that they are taking value away from your home and possibly ruining you financially if you are forced to sell.

They come out take a couple of pictures, glance over the house for a few minutes and collect $400 and move on to the next house.
Real estate agents are the same way.
They would much rather get 3% of $180,000 in 15 days Vs 3% of $210,000 in 60+ days.

Also a major problem for existing home prices is Home Builders, they come in during times like this and buy land cheap and throw up fast cheaply made homes with cheap labor and sell a new home for as cheap or cheaper than existing homes.
This puts a glut of homes on the market and drives down prices.

We live in Raleigh NC and we have ALL of these problems here, house prices here creep up like a glacier.
But will drop like a stone when you have foreclosures, deaths and all the many reasons that houses end up being sold for far less than they should.
Your house could have been worth $180,000 in January and then have a foreclosure and a death and a person forced to sell because of job loss around you and now 6 months later and for no other reason your house is now worth $145,000 just like that, BAM.

The system is designed to protect banks and for real estate agents to make money. The home owner is of zero concern.

It is a total BS system.

Our house price took 20 years to go from $115K to $180K then took 6 months or less to drop from 180K down to $145K and for no reason other than a few neighbors died.

Its the people that make the neighborhoods go downhill. Look at almost every major city in America. In the 1940's -70's, that was the place to live. Now people that use to live there wouldn't move back even if you gave them a house. When people don't work, live off of the gov't and live a life of crime, the businesses leave, the money leaves and the whole city goes downhill. It's a real shame.