Warning: These States Are Most at Risk for Falling Home Prices

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As the housing market correction continues, certain parts of the country have become more vulnerable to the real estate downturn than others.

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.

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