It’s no secret that the pandemic threw a wrench in the housing market upending traditional moving and migration patterns as those with the means fled crowded urban areas for the suburbs and beyond seeking less crowded and infected place with a lower cost of living to ride out the pandemic.
But now as the pandemic wanes and the first lockdowns happened almost 2.5 years ago, popular migration destinations where home prices soared during the pandemic have been found to most likely to see the effects of a housing downturn and should expect year-over-year home prices to decline if the economy enters a recession.
All-in-all, the housing market remained strong during the spring of 2022—but it still slowed considerably—with mortgage rates reaching 5.5% many buyers had to call of the search and sit on the sidelines due to affordability.
Knowing this, Redfin has released a new report that analyzes which of the top 98 metropolitan areas are most susceptible to home-price declines if the country officially enters a recession and which are predicted to be the most resilient should recession conditions occur. The analysis scored each metro on home-price volatility, average debt-to-income ratio, and home price growth. A score of 100 represents the highest likelihood of a housing market downturn, while a score of zero represents the lowest likelihood.
“Recession fears are escalating, mostly because the Fed has signaled it will continue to raise interest rates to tame inflation and cool consumer demand. Higher interest rates led to surging mortgage rates, which have already cooled down the housing market,” said Sheharyar Bokhari, Redfin Senior Economist. “If the U.S. does enter a recession, we’re unlikely to see a housing-market crash like in the Great Recession because the factors affecting the economy are different: Most homeowners have a fair amount of home equity and not much debt and unemployment is low.”
“But a recession—or even a continued economic downturn that doesn’t reach recession levels—would impact some local housing markets more than others, and there are a few factors that put certain areas at risk,” Bokhari continued. “First, what goes up must come down. Home prices soared at an unsustainable rate in many pandemic homebuying hotspots. Additionally, places where people tend to have high debt compared with their income and home equity are vulnerable because their residents are more likely to foreclose or sell at a loss.”
Even in the most vulnerable parts of the country, most homeowners are likely to remain on solid footing, Bokhari said. Home values may drop from the peak they reached in 2021 and early 2022, but the decline is only on paper for homeowners who are staying put for at least a few years, as values typically increase over time.
So where are things the most likely to fail and succeed? By the numbers:
- Riverside, California (84)
- Boise, Idaho (76.9)
- Cape Coral, Florida (76.7)
- North Port, Florida (75)
- Las Vegas, Nevada (74.2)
- Sacramento, California (73.1)
- Bakersfield, California (72.2)
- Phoenix, Arizona (72)
- Tampa, Florida (70.7)
- Tuscon, Arizona (70.1)
“Boise’s market is already turning around, as a lot of the people who moved to Idaho during the pandemic are either moving back to their hometowns or cashing in and moving to more affordable places. The housing market was hot during the pandemic, largely because of out-of-town buyers,” said Shauna Pendleton, a Boise Redfin Agent. “Sellers are asking me if the cash buyers from California are still around, hoping they’ll swoop in and offer to buy their home for more than the asking price–but that’s not happening much anymore, and the cash buyers who are in the market are often offering below the asking price. I don’t expect home values to plummet, but we do need to come down from the clouds at some point and sellers need to adjust their expectations to the new reality: There are more homes on the market, fewer buyers, and a higher chance that buyers can’t pay the asking price because their monthly payments have shot up due to rising rates.”
“But buyers have more to choose from, less likelihood of entering a bidding war and more time to make major financial decisions,” Pendleton continued. “Even if higher rates mean buyers need to look at less expensive homes, they’re still likely to get a better deal than a year ago because homes aren’t being bid up way over the asking price. And if home prices do decline, more people will be able to afford homes in places where they may have been priced out at the height of the buying frenzy.”
And rounding out the bottom 98 cities are:
- Rochester, New York (34)
- Kansas City, Missouri (33.4)
- Buffalo, New York (33.1)
- Boston, Massachusetts (32.6)
- Cincinnati, Ohio (32.6)
- Cleveland, Ohio (32.4)
- El Paso, Texas (32.2)
- Montgomery County, Pennsylvania (31.4)
- Philadelphia, Pennsylvania (30.4)
- Akron, Ohio (29.6)
Click here to view the report, graphics, and methodology directly from Redfin.