California, Illinois, New Jersey, and Delaware are home to the most at-risk housing markets, according to a Special Housing Risk report released by real estate data firm ATTOM.
“Some parts of the country remain considerably more exposed to housing market declines than others,” says Rob Barber, CEO of ATTOM. “While pockets of the country have popped on and off the lists of most or least vulnerable markets, the top 50 list has consistently included the New York City and Chicago areas, as well as Delaware and inland California, over the past two years.”
The report looked at nearly 600 counties with sufficient data across the country in the fourth quarter of the year to determine which ones were most exposed to a potential decline in home prices.
ATTOM analyzed the percentage of homes in each county facing a potential foreclosure, the share of homes with underwater mortgages, the percentage of average local wages needed to afford homeownership expenses for median-priced, single-family homes and condos, and local unemployment rates from October to December 2022.
With 30-year mortgage interest rates climbing above 7%, inflation remaining at a 40-year high, and declines in the stock market, homebuyers across the country just aren’t able to afford as much house as they were during the peak of the COVID-19 pandemic. That’s led home prices to fall in some markets, putting some recent homebuyers who bought at the peak in danger of owing more on their mortgage than their home is currently worth.
Where are the most at-risk counties?
California, Illinois, and New Jersey had 31 of the 50 counties most vulnerable to potential declines across the United States—which have been more or less the same as in the summer when 28 of the 50 counties most vulnerable to home price declines were found in those three states.
Cleveland has three of the most at-risk counties in the country and two counties in Delaware ended up on the list. The rest of the at-risk list counties are clustered in other parts of the East Coast.
The Chicago and New York City metropolitan areas had the largest clusters of at-risk counties, with five in and around New York City and seven in the Chicago vicinity.
Nationally, about 5.9% of homeowners were underwater on their mortgages in the last quarter of 2022, according to ATTOM. The state with the highest percentage of these homeowners was Illinois, with at least 7%.
In Illinois’ Peoria County, about 18.5% of homeowners were underwater; in Rock Island County, 16.1% were underwater; and in Kankakee County, just outside Chicago, about 14.6% were underwater.
What are the least at-risk counties?
The areas least vulnerable to a downturn are often some of the pricier parts of the country where homeowners can afford the higher costs.
Seventeen of the least at-risk counties were in the Midwest, 15 were in the South, and nine each were in the West and Northeast. Wisconsin had six of the 50 least at-risk counties in the fourth quarter of 2022.
Many of the safer real estate markets were pricier counties with high demand for homes.
In these counties, the cost of homeownership consumed the smallest portion of average local income, and the unemployment rate and foreclosure risk were lower.
Less than 5% of residential mortgages were underwater in the fourth quarter in 31 of the 50 counties least at risk. The counties with the lowest percentage of mortgages where homeowners owe more than their homes are worth were Chittenden County, VT, home to Burlington, at 1.1%; Martin County, FL, home to Palm City, at 1.6%; San Mateo County, CA, at 1.9 %; and Santa Clara County, CA, home to San Jose, at 2%.
“The most expensive housing markets around the nation … generally face lower levels of exposure to downturns,” says Barber.
Certain States Most Vulnerable to Real Estate Downturn
As the housing market correction continues, some states are becoming more vulnerable to the real estate downturn than others. California, Illinois, New Jersey, and Delaware are the most at-risk states, according to a report by real estate data firm ATTOM.
The report analyzed nearly 600 counties across the United States in the last quarter of 2022 to determine which ones were most exposed to a potential decline in home prices. The percentage of homes in each county facing potential foreclosure, the share of homes with underwater mortgages, the percentage of average local wages needed to afford homeownership expenses for median-priced, single-family homes and condos, and local unemployment rates were all considered.
It is no surprise that the most expensive housing markets around the nation generally face lower levels of exposure to downturns. Therefore, the least at-risk counties were often some of the pricier parts of the country where homeowners can afford the higher costs.
Seventeen of the least at-risk counties were in the Midwest, 15 were in the South, and nine each were in the West and Northeast. Many of the safer real estate markets were pricier counties with high demand for homes. In these counties, the cost of homeownership consumed the smallest portion of average local income, and the unemployment rate and foreclosure risk were lower.
However, where there is high risk, there is also high reward. California, Illinois, and New Jersey had 31 of the 50 counties most vulnerable to potential declines across the United States, which has been more or less the same as in the summer when 28 of the 50 counties most vulnerable to home price declines were found in those three states.
Nationally, about 5.9% of homeowners were underwater on their mortgages in the last quarter of 2022. The state with the highest percentage of these homeowners was Illinois, with at least 7%. In Illinois’ Peoria County, about 18.5% of homeowners were underwater; in Rock Island County, 16.1% were underwater; and in Kankakee County, just outside Chicago, about 14.6% were underwater.
On the other hand, Cleveland has three of the most at-risk counties in the country, and two counties in Delaware also ended up on the list. The rest of the at-risk list counties are clustered in other parts of the East Coast. The Chicago and New York City metropolitan areas had the largest clusters of at-risk counties, with five in and around New York City and seven in the Chicago vicinity.
With 30-year mortgage interest rates climbing above 7%, inflation remaining at a 40-year high, and declines in the stock market, homebuyers across the country just aren’t able to afford as much house as they were during the peak of the COVID-19 pandemic. That’s led home prices to fall in some markets, putting some recent homebuyers who bought at the peak in danger of owing more on their mortgage than their home is currently worth.
As for the future of the housing market, it’s hard to say what will happen. However, potential homebuyers should be cautious and take these findings into consideration when making their next move.
Another factor contributing to the vulnerability of these housing markets is the high percentage of homes facing potential foreclosure. In some counties, this figure reaches as high as 18.5%, such as in Peoria County, Illinois. With the pandemic and the economic fallout that followed, many homeowners found themselves unable to keep up with mortgage payments, leading to an increase in foreclosure rates.
However, it’s not all bad news for homeowners. The report also identified several areas that are least vulnerable to a downturn. These tend to be pricier parts of the country with high demand for homes, such as Chittenden County, VT, home to Burlington, and Santa Clara County, CA, home to San Jose. In these counties, the cost of homeownership is relatively low compared to local incomes, and unemployment rates and foreclosure risks are lower.
Overall, it’s clear that the current housing market correction is having a significant impact on some parts of the country, particularly in California, Illinois, New Jersey, and Delaware. However, it’s also important to remember that there are areas that are less vulnerable to a downturn, and homeowners in these areas can breathe a little easier. As always, when it comes to real estate, it’s important to do your research and stay informed about the latest trends and developments.
The report goes on to analyze various factors that make certain areas more vulnerable to the housing market downturn than others. Among these factors is the percentage of homes in each county that are facing a potential foreclosure, the share of homes with underwater mortgages, the percentage of average local wages needed to afford homeownership expenses for median-priced, single-family homes and condos, and local unemployment rates.
In light of these factors, it’s no surprise that the most at-risk housing markets are concentrated in California, Illinois, New Jersey, and Delaware. These areas have consistently been at the top of the list for the past two years, indicating that their housing markets are particularly vulnerable to declines.
What’s alarming is that the recent surge in mortgage interest rates, coupled with inflation and stock market declines, has made it even more difficult for homebuyers to afford homes. As a result, home prices are falling in some markets, leaving recent homebuyers who bought at the peak in danger of owing more on their mortgage than their home is currently worth.
So, which counties are most at risk? As the report suggests, California, Illinois, and New Jersey had 31 of the 50 counties that were most vulnerable to potential declines across the United States. Cleveland has three of the most at-risk counties in the country, while two counties in Delaware also made the list. The rest of the at-risk list counties are clustered in other parts of the East Coast.
On the other hand, some areas are less vulnerable to a downturn, and these are typically some of the pricier parts of the country where homeowners can afford the higher costs. Seventeen of the least at-risk counties were in the Midwest, 15 were in the South, and nine each were in the West and Northeast. Wisconsin had six of the 50 least at-risk counties in the fourth quarter of 2022.
While it’s important to keep in mind that housing markets are always subject to fluctuations, these recent findings are a reminder that some areas are more at risk than others. It’s up to homebuyers and investors to do their due diligence and consider the potential risks before making any real estate decisions. As always, it’s better to be safe than sorry.
Conclusion
In conclusion, as the housing market correction continues, certain states and counties are more vulnerable to potential declines in home prices than others. Factors such as the percentage of homes facing potential foreclosure, share of homes with underwater mortgages, affordability of homeownership expenses, and local unemployment rates all play a role in determining which areas are at higher risk. While some areas, particularly pricier markets, have remained relatively safe, residents in the most at-risk areas should be aware of the potential for declines in home prices and take appropriate precautions to protect their investments.
