Real estate markets in Illinois, New Jersey and California are at risk of downturn next year due to higher levels of foreclosures, unemployment and underwater mortgages.
As many as 50 counties in areas like Chicago, New York City, Fresno and more show the most vulnerability based on the portion of mortgage balances that exceed the value of the homes, average local wages required for home ownership expenses, and local unemployment rates.
A housing risk report issued Thursday by ATTOM said that metropolitan areas with high populations like Kings County in New York City and Cook County in Chicago are particularly at risk of a downturn because soaring prices, stagnating wages and the lingering effects of the COVID-19 pandemic impacted affordability.
"Some parts of the country continue to pop up on the radar as places to watch for signs of housing-market drop-offs, based on key quarterly measures," ATTOM CEO Rob Barber said in a statement.
ATTOM's data, which covered the third quarter of the year and covered 578 counties, found that the challenges are not uniformly distributed across the country. Other parts of the nation, especially in the South, Midwest and New England, show more stability.
ATTOM found that in New York City, Kings County (Brooklyn), Richmond County (Staten Island) and Bronx County are notably at risk. The New York City suburbs add to the list with Bergen, Essex, Ocean, Passaic, Sussex and Union counties in New Jersey exhibiting similar vulnerabilities. The Chicago metropolitan area, including Cook, De Kalb, Kane, Lake, McHenry and Will counties in Illinois, along with Lake County in Indiana, also face challenges.
The central region in California shows heightened risk, the report said, particularly in Fresno County, Madera County, Merced County, San Joaquin County (Stockton) and Stanislas County (Modesto).
"Those remain areas to watch, especially given the overall varied trends in the market," Barber said.
ATTOM said that in those areas, at least 5 percent of residential mortgages exceed the value of the properties. The nationwide average stands at 5.2 percent, but in some counties like Webb County in Texas, the rate is much higher.
Newsweek reached out to ATTOM via email for comment.
What Made Markets Heat Up?
The root causes of the current housing market vulnerabilities include rapid escalation of prices during the pandemic, a general shortage of housing, increased demand for larger living spaces as families adapted to remote work and schooling, and an uptick in investment activity in the residential real estate market.
The housing shortage, already a pressing issue pre-pandemic, worsened as new construction failed to keep pace with demand, coupled with investors purchasing nearly 24 percent of all single-family homes in the U.S. in 2021, according to Bloomberg.
The potential downturn is unfolding as the U.S. grapples with the realities of an inflationary post-pandemic economy. In response to rising inflation, the Federal Reserve has increased interest rates to their highest in 22 years, which severely affected borrowing costs and mortgage rates, after historically low interest rates during the pandemic.
"It is important to stress that getting onto the most-vulnerable list doesn't signal an imminent crash for any local market," Barber said in the statement, "it just means that they have greater potential tripwires that could lead to a decline."
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
About the writer
Aj Fabino is a Newsweek reporter based in Chicago. His focus is reporting on Economy & Finance. Aj joined Newsweek ... Read more
