Adobe Stock

New Jersey, Illinois, and California have the highest concentrations of the most-at-risk markets in the second quarter, according to a Special Housing Risk Report from data provider ATTOM. The report spotlights housing markets that are more or less vulnerable to declines based on affordability, unemployment, and other measures in the second quarter of 2022. The largest “at-risk” clusters are present in the New York City and Chicago areas, while markets in Southern and Midwestern states are less vulnerable for declines, according to ATTOM.

Thirty-one of the 50 U.S. counties considered most vulnerable in the second quarter of 2022 to housing market troubles were in the metropolitan areas around Chicago, New York, and Philadelphia, and inland California. The 50 most at-risk counties include nine in and around New York City, six in the Chicago metro area, and 13 across Northern, Southern, and Central California.

“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,” says 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.”

For the report, counties were considered more or less at risk based on the percentage of homes facing possible foreclosure, the portion with mortgage balances that exceeded the 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. ATTOM analyzed 575 counties across the United States and ranked them in each category, generating a conclusion based on a combination of the four ranks.

According to ATTOM, major home ownership costs—including 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 most vulnerable counties. The highest percentages among the most at-risk markets include Kings County, New York (102.9% of average local wages needed for major ownership costs), Riverside County, California (67.6%), and Rockland County, New York (66.2%).

At least 7% of residential mortgages were underwater in the second quarter of 2022 in 23 of the 50 most at-risk counties compared with the nationwide average of 5.9%. More than one in 1,000 residential properties faced a foreclosure action in the second quarter for 80% of the most at-risk counties. The highest rates of foreclosure action were in Cuyahoga County, Ohio (one in 365 residential properties facing possible foreclosure), Cumberland County, New Jersey (one in 373), and Warren County, New Jersey (one in 455).

The June 2022 unemployment rate was at least 7% in 35 of the 50 most at-risk counties, according to ATTOM. The nationwide unemployment rate during the same month was 3.5%.

Conversely, half of the 50 counties least vulnerable to housing market problems in the second quarter were in the South, with an additional 14 counties in the Midwest. Tennessee had six of the 50 least at-risk counties, and Arkansas had four. ATTOM indicates the least vulnerable counties have more affordable homes, lower levels of underwater mortgages and foreclosure activity, and low levels of unemployment.

Major home ownership costs on median-priced single-family homes consumed more than one-third of average local wages in just 24 of the 50 least at-risk counties. Less than 5% of residential mortgages were underwater in the second quarter in 60% of the least at-risk counties, according to ATTOM, and the June unemployment rate was above 5% in just two counties.