Lending markets

6 of the 10 U.S. housing markets most vulnerable to a downturn are in this state

Some real estate markets are more vulnerable to a downturn than others.

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Six of the 10 counties most vulnerable to a downturn are in New Jersey, according to a special housing risk report – which looked at the highest concentrations of the most risky markets in the first quarter of 2022 – released by ATTOM, a real estate data analytics company. (You can see the lowest mortgage rates you could qualify for here.)

Counties are considered vulnerable based on percentage of homes subject to foreclosure, portion with mortgage balances exceeding estimated property values, percentage of average local wages required to pay major homeownership expenses to ownership of single-family homes at median price and unemployment rate. “Housing markets with low affordability and relatively high unemployment rates, underwater lending and foreclosure activity could be at risk if we enter a recession or even face a more modest downturn,” he said. explained Rick Sharga, executive vice president of market intelligence at ATTOM, in a statement.

Most vulnerable to a downturn Less vulnerable to a slowdown

Passaic, New Jersey

Chittenden, Vermont

Essex, New Jersey

Benton, AR

Atlantic, NJ

Davidson, TN

Sussex, DE

King, WA

Kent, DE

Shelby, AL

DeKalb, IL

Durham, North Carolina

Sussex, New Jersey

Tippecanoe, IN

Cumberland, New Jersey

Olmstead, MN

Will, IL

Williamson, TN

Union, New Jersey

Rutherford, TN

Sharga explains that a number of counties in New Jersey are on this list because the state “is endemically prone to certain risk factors, including high prices, which means a higher percentage of household income is necessary to maintain the property” and is surrounded by New York. and Philadelphia, “whose economies have been hit by the pandemic and there’s a spillover into New Jersey because of it.”

New Jersey isn’t the only state with a cluster of vulnerable counties. Indeed, those three states were home to 34 of the 50 counties most vulnerable to potential decline, according to the report. And of the 50 most at-risk counties, eight were in the Chicago metro area (Cook, De Kalb, Kane, Kendall, Lake, McHenry and Will), 6 were in New Jersey near New York (Bergen , Essex, Ocean, Passaic, Sussex and Union, which are in New Jersey) and 10 were scattered throughout California (Butte, San Joaquin, Shasta, Solano, Fresno, Kings, Madera, Merced, Stanislaus and Kern).

This handful of localities may seem geographically random because “rural Northern California and areas around New York and Chicago don’t have much in common, but they do share slower house price growth than the Sunbelt because their populations are growing more slowly,” says Holden Lewis, real estate and mortgage expert at NerdWallet. Adds Jacob Channel, Senior Economist at LendingTree: “Homes in the Chicago and New York areas, as well as homes scattered across many parts of California, are often relatively expensive compared to homes in other parts of the country, and, because of this, people in these areas may need to stretch their budget a bit more to be able to afford a home. (You can see the lowest rates you could qualify for here.)

This, combined with an uncertain outlook for how economies in these regions will fare in the face of continued high inflation and a potential recession, means housing markets could be more vulnerable than average, the pros say. “Of course, areas with high house prices may still have very robust housing markets, assuming other aspects of their economy, such as unemployment, are weak. It’s important to keep in mind that just because there are indicators that one region’s housing market might be more vulnerable than another does not mean that markets in those regions are on the verge of a major meltdown,” Channel said.

The report finds that major homeownership costs, such as mortgage payments, property taxes and insurance on median-priced single-family homes, consumed more than 30% of average local wages in 25 of 50 counties most vulnerable to market problems. The highest percentages in these markets were in San Joaquin County, California, with 48.9% of average local wages needed for major property costs, Bergen County, NJ, with 48.3% of wages average locals needed and Solano County, California with 46.6% of average local wages. necessary for high cost of ownership. To put that into perspective, the report suggests that nationally, heavy spending on typical homes sold in the first quarter of 2022 required 26.3% of average local wages. (You can see the lowest rates you could qualify for here.)

So what could all of this mean for the housing market as a whole and for buyers in vulnerable counties?

Channel points out that the housing market as a whole does not appear to be at particularly high risk of collapse. “Right now, most data, like the country’s low mortgage default rate or the record amount of equity that homeowners are sitting on, still indicates that the majority of homeowners across the country are well positioned to track their payments and don’t at serious risk of defaulting on their loans,” says Channel.

But if you’re looking to buy or sell in a vulnerable county, the pros say you may see increased price drops on homes and sellers more willing to negotiate with buyers. “This could lead to some great deals for those looking to buy a home, but keep in mind that with prices rising in many areas in 2020 and 2021, buyers may still need to brace at high house prices, even if they fall. a bit,” Channel says.