A new report shows that New Jersey, Illinois and inland California had the highest concentrations of the most at-risk markets in the first quarter of 2022—with the biggest clusters in the New York City and Chicago areas, according to ATTOM’s latest Special Housing Risk Report, released Wednesday.
The report, which spotlights county-level housing markets around the United States that are more or less vulnerable to declines, based on home affordability, unemployment and other measures, also showed that southern states were less exposed.
The top three states had 34 of the 50 counties most vulnerable to the potential declines, the report stated. The 50 most at-risk included eight counties in the Chicago metropolitan area, six near New York City and 10 sprinkled throughout northern, central and southern California.
Elsewhere, the rest of the top 50 counties were scattered mainly along the East Coast and in the Midwest. They included three each in the Cleveland, Ohio, and Philadelphia, Pennsyvania, metropolitan areas, plus two of Delaware’s three counties. At the other end of the risk spectrum, the South had the highest concentration of markets considered least vulnerable to falling housing markets, according to the report.
“While the housing market has been exceptionally strong over the past few years, that doesn’t mean there aren’t areas of potential vulnerability if economic conditions continue to weaken,” said Rick Sharga, executive vice president of market intelligence at ATTOM. “Housing markets with poor affordability and relatively high rates of unemployment, underwater loans, and foreclosure activity could be at risk if we enter a recession or even face a more modest downturn.”
The report shows that New Jersey, Illinois, and California had the highest concentrations of the most at-risk markets, with 34 out of the top 50 across them.
Among these were eight counties in the Chicago metropolitan area: Cook, De Kalb, Kane, Kendall, Lake, McHenry and Will counties in Illinois, plus Lake County, Indiana. Six of the New Jersey counties (Bergen, Essex, Ocean, Passaic, Sussex and Union) are part of the New York City metropolitan area, while two (Camden and Gloucester) are part of the Philadelphia area.
The 10 California counties in the top 50 lack the same geographic confluence, including counties in North (Butte, San Joaquin, Shasta and Solano Counties), South (Kern county), and Central California (Fresno, Kings, Madera, Merced, Stanislaus Counties).
The remainder of the top 50 counties were scattered throughout the East Coast and the Midwest. These included Cuyahoga, Lake and Lorain counties near Cleveland, Ohio, and Philadelphia county in Pennsylvania. Further south, two of Delaware’s three counties (Kent and Sussex) made the list, as did Baltimore, Charles, and Prince George’s counties in Maryland.
Go any further south, though, and the risk starts declining. Southern states had the highest concentration of markets considered least vulnerable to falling housing markets: 26 of the top 50. For comparison, only five of the least vulnerable were in the Northeast.
Tennessee had eight, including five in the Nashville metropolitan area (Davidson, Rutherford, Sumner, Williamson and Wilson counties), while Virginia had five, including three in the Washington, DC area (Arlington, Fairfax and Loudoun counties). In the Midwest, Wisconsin showed the least vulnerability, with four counties (Brown, Dane, Eau Claire, and Winnebago) in the top 50.
What sets the most and least at-risk markets apart? The counties most at-risk have higher levels of unaffordable housing, underwater mortgages, foreclosures and unemployment, both in comparison to the least vulnerable counties and national averages.
In 25 of the top 50 most vulnerable counties, home ownership costs on median-priced single-family homes consumed more than 30% of average local wages. The highest percentage in those markets was in San Joaquin County, where 48.9% of average local wages were needed for home ownership costs.
Nationally, 6.5% of mortgages are underwater. In 22 of the 50 most at-risk counties, 10% of mortgages fell into that category, while in 31 of the 50 least vulnerable counties, less than 5% did.
Less than one in 5,000 residential properties faced foreclosure during Q1 2022 in 27 of the 50 least at-risk counties, while more than one in 1000 properties did in 29 of the 50 most at-risk counties. The nationwide foreclosure average is one in 1,795 homes.
The March 2022 unemployment rate was at least 5% in 29 of the 50 most at-risk counties, while it didn’t reach 5% in any of the 50 least at-risk counties; the nationwide unemployment rate was 3.6%.
These disparities come at an uncertain time for the housing market. While it has been on the rise throughout the COVID-19 pandemic, it shows recent signs of cooling, owing to a rise in home-price value and interest rates.
“The housing market has been one of the strongest components of the U.S. economy since the onset of the COVID-19 pandemic,” said Sharga. “But Federal Reserve actions aimed at bringing inflation down from its 41-year high are having an immediate impact on home affordability, sales, and pricing. Whether the Fed can execute a relatively soft landing, or inadvertently steer the economy into a recession will determine the fate of the housing market over the next 12-18 months.”
