These housing markets are the most vulnerable in a recession

These housing markets are the most vulnerable in a recession

New Jersey, Illinois and Interior California have the highest concentrations of the most vulnerable housing markets in an economic downturn due to high unemployment rates and low affordability, according to a recent report by the real estate data company ATTOM.

Markets in the New York and Chicago areas, in particular, were the most vulnerable, according to ATTOM’s housing risk special report.

The report highlights the relative vulnerability of counties nationwide to an economic downturn.

That doesn’t suggest “that markets with a relatively high risk rating are in danger of some kind of impending housing market disaster,” Rick Sharga, executive vice president of market intelligence, told FOX Business. at ATTOM.

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A real estate sign in Manhattan in August 2022. (Daniella Genovese/Fox Business)

However, the housing market has cooled so rapidly in recent months that some economists with the National Association of Realtors believe the industry has entered a recession.

Homebuilder sentiment toward the industry has plunged to the lowest level in two years, and buyers are pulling out of the market as they cancel home sales at the fastest pace since 2020 and builders are rethinking construction.

“We are seeing a real estate recession in terms of declining home sales and construction,” Lawrence Yun, chief economist for the National Association of Realtors, said recently.

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ATTOM’s report, based on housing affordability gaps, underwater mortgages, foreclosures and unemployment during the second quarter, showed that 33 of the 50 counties most vulnerable to potential declines were located in the New Jersey, Illinois and California.

Nine of the 50 most at-risk markets were around the New York area, including Kings and Richmond counties, which span Brooklyn and Staten Island. Six were in the Chicago metro area, including Cook, Kane, Kendall and McHenry counties, the data shows.

for sale mortgage

A “for sale” sign hangs in front of a home on June 21, 2022 in Miami, Florida. (Joe Raedle/Getty Images/Getty Images)

Thirteen of the most risky markets were spread across northern, central and southern California. This includes Butte, Humboldt, Shasta and Solano counties in the northern part of the state as well as Fresno, Kings and Madera counties in central California. Additionally, Kern, Riverside and San Bernardino counties in the southern part of the state were also among the most at-risk California markets.

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“The most vulnerable markets shared two fairly consistent attributes: unemployment above the national average and very poor affordability,” Sharga said.

To determine affordability, the company looked at the share of median household income that would be needed to buy a home at the median market price. The national average is 31.5%. But, in many of the riskiest markets, it was over 50%, according to the data.

lodging

A “for sale” sign in Crockett, California on June 14, 2022. (David Paul Morris/Bloomberg via Getty Images/Getty Images)

“Mortgages with such a high debt-to-equity ratio have always been considered very risky because these borrowers find it difficult to manage other expenses or build up cash reserves that they can use in an emergency” , added Sharga.

Not surprisingly, Sharga said, many of the most risky markets were in some of the most expensive metropolitan areas in the country, such as New York and Chicago, where accessibility is lowest. .

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By comparison, the South and Midwest had the highest concentration of markets considered least vulnerable to a downturn. Counties in this part of the country have more affordable homes and lower levels of underwater mortgages, foreclosure activity and unemployment.

According to the data, 25 of the 50 least vulnerable counties were in the South and another 14 in the Midwest.

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