California, New Jersey And Illinois Again Dominate List Of Vulnerable Housing Markets

ATTOM released a Special Housing Risk Report spotlighting county-level housing markets around the United States that are more or less vulnerable to declines, based on home affordability, unemployment and other measures in the second quarter of 2022. The report shows that New Jersey, Illinois and inland California continued to have the highest concentrations of the most-at-risk markets in the second quarter – with the biggest clusters in the New York City and Chicago areas. Southern and midwestern states remained less exposed.

The second-quarter patterns – based on gaps in home affordability, underwater mortgages, foreclosures and unemployment – revealed that New Jersey, Illinois and California had 33 of the 50 counties most vulnerable to potential declines. The 50 most at-risk included nine in and around New York City, six in the Chicago metropolitan area, and 13 spread through northern, central and southern California. The rest of the top 50 counties were scattered across the U.S., including three in the Philadelphia, PA, metro area. At the other end of the risk spectrum, the South and Midwest had the highest concentration of markets considered least vulnerable to falling housing markets.

“The Federal Reserve has promised to be as aggressive as it needs to be in order to get inflation under control, even if its actions lead to a recession,” said Rick Sharga, executive vice president of market intelligence at ATTOM. “Given how little progress has been made reducing inflation so far, the Fed’s actions seem more and more likely to drive the economy into a recession, and some housing markets are going to be more vulnerable than others if that happens.”

Counties were considered more or less at risk based on the percentage of homes facing possible foreclosure, the portion with mortgage balances that exceeded estimated property values, the percentage of average local wages required to pay for major home ownership expenses on median-priced single-family homes, and local unemployment rates. The conclusions were drawn from an analysis of the most recent home affordability, equity and foreclosure reports prepared by ATTOM. Unemployment rates came from federal government data. Rankings were based on a combination of those four categories in 575 counties around the United States with sufficient data to analyze in the second quarter of 2022. Counties were ranked in each category, from lowest to highest, with the overall conclusion based on a combination of the four ranks. See below for the full methodology.

The ongoing wide disparities in risks throughout the country comes during a time when the U.S. housing market faces headwinds that threaten to slow down or end an 11-year surge in home prices.

Sales of both existing and new homes have declined as mortgage rates have almost doubled to 6 percent over the past year, and inflation remains near a 40-year high. However the most recent risk gaps do not suggest an imminent fall in housing markets anywhere in the nation. Home prices have risen more than 10 percent in most of the country over the past year, with new highs hit in the vast majority of metropolitan-area markets. That has kept homeowner equity and home-seller profits rising.

Those numbers have continued to improve as demand, buoyed by increasing household formation by young adults and rising wages has continued to outpace an historically tight supply of properties for sale.

Amid that mixed scenario, home affordability is worsening, lender foreclosures on delinquent mortgages are up and the number of home sales is slowing, with local housing markets heading into that uncertain future facing significant differences in risk measures.

Most-vulnerable counties clustered in the Chicago, New York City and Philadelphia areas, along with sections of California

Thirty-one of the 50 U.S. counties considered most vulnerable in the second quarter of 2022 to housing market troubles (from among 575 counties with enough data to be included in the report) were in the metropolitan areas around Chicago, IL; New York, NY; and Philadelphia, PA, as well as in California. California markets on the list were mostly inland, away from the coast.

The top 50 counties included two in New York City (Kings and Richmond counties, which cover Brooklyn and Staten Island), seven in the New York City suburbs (Bergen, Essex, Ocean, Passaic, Sussex and Union counties in New Jersey and Rockland County in New York) and six in the Chicago metropolitan area (Cook, Kane, Kendall, McHenry and Will counties in Illinois and Lake County, IN). The three in the Philadelphia, PA, metro area that were among the top 50 most at-risk in the second quarter were Philadelphia County, along with Camden and Gloucester counties in New Jersey.

Elsewhere, California had 13 counties in the top 50 list: Butte County (Chico), Humboldt County (Eureka), Shasta County (Redding) and Solano County (outside Sacramento) in the northern part of the state; Fresno County, Kings County (outside Fresno), Madera County (outside Fresno), Merced County (outside Modesto), San Joaquin County (Stockton) and Tulare County (outside Fresno) in central California, and Kern County (Bakersfield), Riverside County and San Bernardino County in the southern part of the state.

Counties most at-risk continue to have higher levels of unaffordable housing, underwater mortgages, foreclosures and unemployment

Major home ownership costs (mortgage payments, property taxes and insurance) on median-priced single-family homes consumed more than one-third of average local wages in 35 of the 50 counties that were most vulnerable to market problems in the second quarter of 2022. The highest percentages in those markets were in Kings County (Brooklyn), NY (102.9 percent of average local wages needed for major ownership costs); Riverside County, CA (67.6 percent); Rockland County, NY (outside New York City) (66.2 percent); Richmond County (Staten Island), NY (61.8 percent) and San Joaquin County (Stockton), CA (58.7 percent). Nationwide, major expenses on typical homes sold in the second quarter required 31.5 percent of average local wages.

At least 7 percent of residential mortgages were underwater in the second quarter of 2022 in 23 of the 50 most at-risk counties. Nationwide, 5.9 percent of mortgages fell into that category. Those with the highest underwater rates among the 50 most at-risk counties were Rockland County, NY (outside New York City) (19.2 percent of mortgages were underwater); Lake County, IN (outside Chicago, IL) (18.9 percent); Peoria County, IL (17.6 percent); Philadelphia County, PA (16.1 percent) and Saint Clair County, IL (outside St. Louis, MO) (16.1 percent).

More than one in 1,000 residential properties faced a foreclosure action in the second quarter of 2022 in 40 of the 50 most at-risk counties. Nationwide, one in 1,559 homes were in that position. Foreclosure actions have risen since the expiration last July of a federal moratorium on lenders taking back properties from homeowners who fell behind on their mortgages during the early part of the Coronavirus pandemic that hit in 2020. They are expected to continue increasing over the coming year. The highest rates in the top 50 counties were in Cuyahoga County (Cleveland), OH (one in 365 residential properties facing possible foreclosure; Cumberland County, NJ (outside Philadelphia, PA) (one in 373); Warren County, NJ (outside Allentown, PA) (one in 455); Camden County, NJ (outside Philadelphia, PA) (one in 462) and Saint Clair County, IL (outside St. Louis, MO) (one in 470).

The June 2022 unemployment rate was at least 7 percent in 35 of the 50 most at-risk counties, while the nationwide figure stood at 3.5 percent. The highest levels among the top 50 counties were in Tulare County, CA (outside Fresno) (11.7 percent); Merced County, CA (outside Modesto) (11.5 percent); Kern County (Bakersfield), CA (11.3 percent); Kings County, CA (outside Fresno) (10.9 percent) and Kings County (Brooklyn), NY (10.8 percent).

Counties less at-risk concentrated in South and Midwest

Twenty-five of the 50 counties least vulnerable to housing-market problems from among the 575 included in the second-quarter report were in the South, while another 14 were in the Midwest. Just five were in the West and six in the Northeast.

Tennessee had six of the 50 least at-risk counties, including three in the Nashville metropolitan area (Davidson, Rutherford and Williamson counties), while Wisconsin had five – Brown County (Green Bay), Dane County (Madison), Eau Claire County, La Crosse County and Winnebago County (Oshkosh). Another four were in Arkansas: Benton County (Rogers), Craighead County (Jonesboro), Sebastian County (Fort Smith) and Washington County (Fayetteville).

Counties with a population of at least 500,000 that were among the 50 least at-risk included King County (Seattle), WA; Travis County (Austin), TX; Salt Lake County (Salt Lake City), UT; Wake County (Raleigh), NC, and Cobb County (Marietta), GA.

Least-vulnerable counties have more-affordable homes along with lower levels of underwater mortgages, foreclosure activity and unemployment

Major home ownership costs (mortgage payments, property taxes and insurance) on median-priced single-family homes consumed more than one-third of average local wages in just 24 of the 50 counties that were least vulnerable to market problems in the second quarter of 2022. The lowest percentages in those markets were in Sebastian County (Fort Smith), AR (16.5 percent of average local wages needed for major ownership costs); Potter County (Amarillo), TX (16.5 percent); Sullivan County (Kingsport), TN (21.5 percent); Winnebago County (Oshkosh), WI (22.8 percent) and Craighead County (Jonesboro), AR (23.3 percent).

Less than 5 percent of residential mortgages were underwater in the second quarter of 2022 (with owners owing more than their properties are worth) in 30 of the 50 least-at-risk counties. Those with the lowest rates among those counties were Chittenden County (Burlington), VT (1.3 percent of mortgages were underwater); Williamson County, TX (outside Austin) (1.4 percent); Williamson County, TN (outside Nashville) (1.5 percent); Travis County (Austin), TX (1.8 percent) and Wake County (Raleigh), NC (1.9 percent).

More than one in 1,000 residential properties faced a foreclosure action during the second quarter of 2022 in none of the 50 least at-risk counties. Those with the lowest rates in those counties were Fayette County (Lexington), KY (one in 48,714 residential properties facing possible foreclosure); Chittenden County (Burlington), VT (one in 36,543); Missoula County, MT (one in 27,271); Johnson County (Overland Park), KS (one in 20,973) and Williamson County, TN (outside Nashville) (one in 15,189).

The June 2022 unemployment rate was more than 5 percent in just two of the 50 least-at-risk counties. The lowest rates among the top 50 counties were in Cache County (Logan), UT (2.4 percent); Sarpy County, NE (outside Omaha) (2.8 percent); Hamilton County, IN (outside Indianapolis) (2.8 percent); Shelby County, AL (outside Birmingham) (2.8 percent) and Forsyth County, GA (outside Atlanta) (2.9 percent).