Fourth quarter patterns, based on home affordability, underwater mortgages, foreclosures, and unemployment, have kept New Jersey, Illinois, and California in the spotlight as the most vulnerable markets for potential declines. According to a Special Housing Risk Report from ATTOM, the three states had 31 of the 50 most vulnerable counties, from among 581 counties with enough data to be included in the report.
Delaware also continued to have some of the highest concentrations of the most at-risk markets, while the New York City, Chicago, and Cleveland metros had the largest clusters. Chicago had seven; New York City, two; New York City suburbs, three; and Cleveland, three. In California, there were 13 counties spread throughout the state included in the top 50 list. The remaining top 50 most vulnerable counties were clustered in other parts of the East Coast.
"With the U.S. housing market cooling off considerably since the middle of last year, some areas of the country continue to show signs of being more at risk of a larger downturn than others. That's based on several key factors that can either boost or damage local housing markets, including unusually high homeownership costs, foreclosures, and relatively weak homeowner equity," says Rob Barber, CEO at ATTOM.
"It remains important to note that we are not identifying markets headed for an imminent fall, just those that look to be more exposed to market troubles. Heading into the peak buying season of 2023, we will keep monitoring those areas closely to see if anything changes."
For median-priced single-family homes and condos, major homeownership costs consumed more than one-third of average local wages in 34 of the 50 most vulnerable counties in Q4. The highest percentages in those markets were in Kings County (Brooklyn), New York, at 114.6% of average local wages needed for major ownership costs; Richmond County (Staten Island), New York, at 70.1%; Riverside County, California, at 70%; San Joaquin County (Stockton), California, at 63.6%; and Passaic County, New Jersey (outside New York City), at 59.6%. Major expenses on typical homes sold in Q4 required 32.3% of average local wages nationwide.
In 25 of the 50 most at-risk counties, at least 7% of residential mortgages were underwater in Q4, while 5.9% of mortgages fell into the underwater category nationwide. In 44 of the 50 most at-risk counties, more than one of every 1,000 residential properties faced a foreclosure action in Q4, while the November 2022 unemployment rate was higher than the national 3.7% level in 41 of the 50 most at-risk counties.
The Midwest and South Remain Least at Risk
On the other end of the spectrum, the Midwest and South continue to have the larger concentrations of less at-risk markets. From among the 581 included counties, 17 of the 50 least vulnerable to housing market problems were in the Midwest, and 15 were in the South. Spread throughout the state, Wisconsin had six of the 50 least at-risk counties in Q4. Three others were in the Nashville, Tennessee, metro.
Santa Clara County (San Jose), California; Middlesex County, Massachusetts (outside Boston); Travis County (Austin), Texas; Hennepin County (Minneapolis), Minnesota; and Salt Lake County (Salt Lake City), Utah, were among the 50 least at-risk counties with a population of at least 1 million.
In 31 of the 50 least at-risk counties, less than 5% of residential mortgages were underwater in Q4. More than one in 1,000 residential properties faced a foreclosure action during Q4 in none of the 50 least at-risk counties, while the November 2022 unemployment rate was less than 3% in every one of the 50 least at-risk counties.
In the 50 least-vulnerable counties, homeownership consumed the smallest portion of average local wages in Morgan County, Alabama (outside Huntsville), at 22.6% of average local wages needed for major ownership costs; Winnebago County (Oshkosh), Wisconsin, at 24.8%; Limestone County, Alabama (outside Huntsville), at 25.5%; Tippecanoe County (Lafayette), Indiana, at 27.2%; and Olmsted County (Rochester), Minnesota, at 27.9%.
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 homeownership expenses on median-priced single-family homes and condos, 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. Counties were ranked in each category, from lowest to highest, with the overall conclusion based on a combination of the four tallies.
