I have argued in the past that bubble inflation was largely a function of the elasticity of housing supply. Both Atlanta and Dallas added massive amounts of housing over the last decade, which prevented prices from rising and forming a bubble. But Texas and Georgia do have very different rules on mortgage lending, and so despite the similarity in price performance during the housing boom, the two states have experienced sharply diverging fortunes where defaults and foreclosures are concerned.

via What good are mortgage regulations? | Free exchange | Economist.com.

I’m a local expert so I may be off here.  This rings only partly true to me.

Both Atlanta and Dallas increased their housing stock enormously.  That is very true, but I am under the impression that development costs in and around Dallas are much cheaper than they are in Atlanta.

Here in the Denver metro we added a ton of housing, but a great many new homes were priced above $250,000.  That’s outside the range that the median income household could typically afford without low rates or hybrid mortgage products.  Why was the price so high?  When I have asked the answers have been limitations on development particularly the cost of water.

In Colorado, Dallas’ housing is pointed to as an example of how our development costs are keeping housing higher than they are in down in Texas.

The second point regarding the difference in mortgage laws is somewhat vague.  The major exception in Texas was the restriction on “cash-out refinances”.  That probably did protect the Dallas homeowner for some period by preventing the use of the home as an A.T.M.  But, those laws have been changed for sometime.  The trend in the Texas has been towards convergence with Georgia’s laws.

The real reason that Atlanta has terrible foreclosure rates and Dallas does not is that Atlanta had a much larger bubble as their housing stock cost more to produce.  Foreclosure is primarily driven by equity.  If an owner has equity in the current market, the owner will do that.  If in the current market the owner does not have equity, then the choices are: holding on, a short sale, or foreclosure.  The popping of the bubble has forced people, who formerly had equity, into the category of having to make the choice.

Dallas’ market is still above the point where people must choose between holding, short-selling, or a foreclosure.  Atlanta’s is not.  The market rather than the mortgage laws is the cause of that.