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Analyzing Q3’s Most At-Risk Housing Markets

ATTOM has issued a Special Housing Risk Report spotlighting county-level housing markets around the nation that are more or less vulnerable to declines, based on home affordability, foreclosures, and other measures in Q3 of 2022.

ATTOM’s report shows that New Jersey, Illinois, Delaware, and inland California continued to have the highest concentrations of the most-at-risk markets in the country, with the biggest clusters in the New York City, Chicago, and Philadelphia areas. Southern and Midwestern states remaining less exposed.

Q3 patterns—based on gaps in home affordability, underwater mortgages, foreclosures, and unemployment—revealed that New Jersey, Illinois, and California had 28 of the 50 counties most vulnerable to potential declines. That was roughly the same as the 27 more-at-risk markets that were in those states in Q2 of 2022. During a time when the broader market boom slowed considerably, those concentrations still dwarfed other parts of the country.

The 50 most at-risk included eight in and around New York City, seven in the Chicago metropolitan area, four in or near Philadelphia and nine spread through northern, central, and southern California. The rest were clustered mainly in other parts of the East Coast, including all three counties in Delaware.

"As the prospect of a possible recession hangs over the U.S. economy, counties in three of the seven largest metropolitan areas–New York City, Chicago, and Philadelphia–are among the most vulnerable to a potential downturn in their housing markets," said Rick Sharga, EVP of Market Intelligence at ATTOM. "These counties, and many more in Central California share a number of traits–poor affordability, relatively high unemployment and foreclosure rates, and homeowners who are underwater on their loans–which could spell trouble if the economy takes a turn for the worse."

At the other end of the risk spectrum, the South, Midwest, and Western areas outside California had the highest concentration of markets considered least vulnerable to falling housing markets.

Counties were considered more or less at-risk based on the percentage of homes facing possible foreclosure, 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.

The ongoing wide disparities in risk throughout the country remained in place at a time when the overall U.S. housing market had one of its weakest third-quarter performance in the past decade. Key measures for the period running from July through September of 2022 showed the national median home value decreasing 3%, home-seller profits declining, foreclosures doubling, compared to the same period in 2021, and mortgage lending plummeting to its lowest level in three years.

All of that happened as the 30-year fixed-rate mortgage (FRM) climbed close to 7%, inflation remained at a 40-year high, and the stock market fell. Each of those forces cut into what home buyers could afford.

ATTOM’s analysis found that 28 of the 50 U.S. counties considered most vulnerable in Q3 of 2022 to housing market troubles (from among 581 counties with enough data to be included in the report) were in the metropolitan areas around Chicago; New York, New York; and Philadelphia, as well as in California. California markets on the list remained mostly inland, away from the coast.

The 50 most at-risk counties included three in New York City (Kings, New York, and Richmond counties, which cover Brooklyn, Manhattan, and Staten Island), five in the New York City suburbs (Essex, Passaic, Sussex, and Union counties in New Jersey and Rockland County in New York) and seven in the Chicago metropolitan area (Cook, De Kalb, Kane, Kendall, Lake, McHenry, and Will counties, all in Illinois). The four in the Philadelphia metro area that were among the top 50 in the third quarter were Philadelphia County; Gloucester County, New Jersey; New Castle County, Delaware; and Cecil County, Maryland.

Nine California counties populated the top 50 list, including:

  • Butte County (outside Sacramento)
  • Humboldt County (Eureka)
  • Shasta County (Redding)
  • Madera County (outside Fresno)
  • Merced County (outside Modesto)
  • Stanislaus County (Modesto)
  • Tulare County (outside Fresno)
  • Kern County (Bakersfield)
  • Riverside County (southern part of California)

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 33 of the 50 counties that were most vulnerable to market problems in Q3 of 2022. The highest percentages in those markets were in:

  • Kings County, New York (Brooklyn), (106.1% of average local wages needed for major ownership costs)
  • Rockland County, New York (75.6% of average local wages needed for major ownership costs)
  • Riverside County, California (63.8% of average local wages needed for major ownership costs)
  • Richmond County (Staten Island), New York (63.3% of average local wages needed for major ownership costs)
  • New York County (Manhattan), New York (60.6% of average local wages needed for major ownership costs)

At least 7% of residential mortgages were underwater in Q3 of 2022 in 28 of the 50 most at-risk counties. Nationwide, 5.7% of mortgages fell into that category, with homeowners owing more on their mortgages than the estimated value of their properties. Those with the highest underwater rates among the 50 most at-risk counties were:

  • Peoria County, Illinois (16.8% underwater)
  • Tangipahoa Parish, Louisiana (outside New Orleans) (15.7% underwater)
  • Saint Clair County, Illinois (outside St. Louis) (15.1% underwater)
  • Kankakee County, Illinois (outside Chicago) (14.8% underwater)
  • Philadelphia County, Pennsylvania (14.5% underwater)

More than one of every 1,000 residential properties faced a foreclosure action in Q3 of 2022 in 45 of the 50 most at-risk counties. Nationwide, one in 1,517 homes were in that position. (Foreclosure actions have risen since the expiration in July 2021 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. Roughly twice as many foreclosure cases were open in the third quarter of 2022 compared to same period in 2021.) The highest foreclosure rates in the top 50 counties were in:

  • De Kalb County, Illinois (outside Chicago) (one in 289 residential properties facing possible foreclosure)
  • Peoria County, Illinois (one in 326 residential properties facing possible foreclosure)
  • Sussex County, New Jersey (outside New York City) (one in 410 residential properties facing possible foreclosure)
  • Cumberland County, New Jersey (one in 433 residential properties facing possible foreclosure)
  • Will County, Illinois (one in 457 residential properties facing possible foreclosure)

Click here for more on ATTOM’s study of the nation’s most vulnerable regions.

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.
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