Recent data details which U.S. housing markets are most vulnerable to COVID-19 impact

by Clayton Jarvis16 Apr 2020

In a recent report that examines county-level housing markets and their vulnerability to the impact of the coronavirus pandemic, Attom Data Solutions found that 24 of the 50 most at-risk markets are in New Jersey and Florida.

With 14 counties meeting the criteria for high vulnerability, New Jersey leads the country, followed by Florida’s 10 counties and New York’s five. Only two counties in the West and five in the Midwest – all in Illinois – appeared in the list of the 50 most vulnerable markets.

In the context of the report, a vulnerable are is one that is exposed to multiple factors that typically cause problems in housing markets: home prices that are unaffordable for the average worker and relatively high levels of recent foreclosure activity and homeowners with mortgage debt that exceeds the value of their property.

“The higher a local market ranks on those factors, the more at-risk it is of a fall, whether this means price declines, greater mortgage delinquencies, declining equity or some combination of those three,” Attom’s chief product officer, Todd Teta, told MPA through email. “There are other important factors, too, including how dependent local job markets are on industries decimated by the virus outbreak. But the three factors discussed in the report all have a significant impact.”

According to Teta, New Jersey’s high number of vulnerable housing markets is the result of a triple-whammy of unaffordable housing, above-average levels of underwater properties and relatively high percentages of properties facing possible foreclosure. Mortgage, property taxes and insurance take up at least 35% of the average local wage in eight of the 14 counties that made the report’s top 50. In five counties, that percentage rises to more than 43%.

“While many households have two people working, losing one job could put in danger their ability to pay those expenses,” Teta said, adding that at least 25% of mortgage holders are underwater in six of the 14 New Jersey counties examined. The national figure is 13%.

The situation is similar in Florida, where a total of 36 counties were studied. In 26 of those counties, the percentage of income needed to buy is higher than the national average of 31.1%. 20 counties in the state have above-average percentages of underwater homeowners.

COVID-19 will only exacerbate the problems homeowners in these areas are already struggling with, particularly those who purchased at the peak of the market. Teta says they will face the biggest issues if prices drop and they start owing more than their homes are worth.

“What impact that will have is hard to gauge, but it increases the chances for a repeat of what happened in the aftermath of the Great Recession of the late 2000 and early 2010s, with rising foreclosures or people simply walking away from their properties, unable or unwilling to keeping paying off debt,” Teta said.

Further COVID-19-driven disruption in these markets could have appreciation-killing consequences: a lack of demand for housing drives down prices; a rise in foreclosures drives up inventory; a rise in the number of vacant properties lessens the appeal of once-attractive neighborhoods.

“Additional damage may then affect individual homeowners' finances if values drop because it reduces their equity, cuts into their ability to borrow money against their property and lowers the profit they can make on a home sale,” said Teta.