Revealed - US counties most vulnerable to housing market collapse

Does your county make the top 50 list?

Revealed - US counties most vulnerable to housing market collapse

New Jersey, Illinois and parts of California are among the most at-risk housing markets vulnerable to pandemic-fueled economic damage, according to a new report. Findings also detail the parts of the US less susceptible to market changes and those with the most underwater mortgages since a federal eviction moratorium was lifted.

ATTOM, self-described as curator of the nation’s premier property database, released its fourth-quarter Special Coronavirus Report spotlighting vulnerable housing markets across the US at the county level. While the aforementioned states emerged as most susceptible to economic erosion caused by the pandemic, the biggest clusters are in New York City and the Chicago area, according to the findings. Conversely, the western portion of the country – outside of California – remained far less exposed, the study found.

Mortgage Professional America reached out to ATTOM chief product officer Todd Teta for more details, asking if dynamics unique to various counties helped in exacerbating the economic threat. “Yes,” Teta responded. “We look at three key measures that could make some markets more vulnerable than others. One is whether median-priced single-family homes are affordable to someone making the average local wage, meaning major home ownership expenses don’t soak up more than 28% of an average paycheck. The others are the portion of homeowners underwater on their mortgages (owing more than the estimated value of their property) and the percentage of homeowners at some point in the foreclosure process.”

To be sure, macroeconomic forces – a weak economy or anemic job market, to name two – also contribute as mitigating factors to financial corrosion. But Teta said his research focuses quarterly on metrics enabling a snapshot of how different markets are faring.

Read more: Real estate crash in 2022 – how likely is it?

“For this report,” he said, “we combined the three to get a general sense of which counties could be more exposed to a fall if the virus pandemic causes new damage to the economy and finally starts eating away at the long housing-market boom the country has enjoyed for the past decade.”

Given that calculus, a number of scenarios could occur: “The impact from the pandemic would include a number of possibilities,” Teta said. “The main thing would involve prices flattening out or dropping if the pandemic finally causes enough economic disruption to damage local housing markets. By extension, that could lead to more homeowners going underwater because their equity decreases, or more facing foreclosure because of pandemic-related job losses.”

Concern over the latter scenario has been heightened given the end to a federal moratorium on foreclosures that ended at the end of July, the researcher said. “If we start to see a surge of foreclosures, that could raise the supply of homes for sale, which could dampen prices,” Teta observed. “It also could result in more vacant properties subject to decay and blight and lead to a vicious cycle that harms values even more, as it did after the Great Recession a decade ago. While falling prices may lead to homes being more affordable to more people, the impact would likely be negative because it hurts household wealth – a downturn that would have multiple ripple effects across the economy.”

High home values have been a boon to established homeowners, who have been pulling out equity at record levels in securing cash for various means – for college tuition to renovations. But the same appreciation has made homeownership more elusive for first-time homebuyers facing lack of affordability. Meanwhile, those with little equity in their homes have become more vulnerable to financial hardship.

Read next: US foreclosure activity falls to all-time low

That reality also figures into the mix in predicting the potential for financial corrosive effects stemming from the pandemic, Teta noted. “It’s rooted in multiple forces, including prices that are getting too expensive in some areas for average workers to afford, homeowners who have very little equity because they started off with low down payments and foreclosure levels that already are relatively high,” he said. “When combined, those things can put any given housing markets in greater danger of a fall if the pandemic causes enough damage to the broader economy. It clearly hasn’t happened yet, and might not. But weak price affordability, relatively low homeowner equity and higher foreclosure rates suggest weaker foundations under markets from one place to another.”

In light of such forces, the three aforementioned states – New Jersey, Illinois and California – had 31 of the 50 counties most vulnerable to potential economic impact of the pandemic, according to ATTOM’s findings. “The 50 most at-risk included eight counties in the Chicago metropolitan area, an equal number near New York City, and seven sprinkled throughout northern, central and southern California, the report showed.

Elsewhere, the rest of the top 50 counties were scattered mainly along the East Coast, including two of Delaware’s three counties and another three in the Philadelphia metropolitan area, the data showed. Outside of California, no other western counties made the top 50 list during the fourth quarter of 2021, according to the findings. Quite the contrary: the West region again had the highest concentration of markets considered least vulnerable to pandemic-related damage, the findings indicate.

The study revealed that disparities in pandemic-related risks to housing markets across the country remained in place during the fourth quarter of last year, even as a decade-long boom in the broader US market continued. Figures show that prices climbed more than 10 % in most of the nation last year – because of, and in spite of, the ongoing pandemic that slowed or idled major economic sectors in 2020.

“Throughout the past year, a surge of buyers has flooded the housing market amid a combination of historically low home-mortgage rates and a desire by many to trade congested virus-prone areas for the perceived safety and larger space offered by a house or condominium,” the report reads. “As they have chased a tight supply of homes choked further by the pandemic, prices have soared.”

Yet signs of a possible market slowdown have emerged in the form of declining home affordability, slumping investor profits and rising inflation, the report found. The specter of the pandemic also remains a threat as a third wave of infections surges across the country given the Omicron variant of the virus.

Learn how to use our free home affordability calculator to see if you can get your dream home.

“With that danger still looming, the risk of a downturn remained higher in the fourth quarter of 2021 in counties with some combination of three warning signs: Housing that is unaffordable for average workers, higher levels of foreclosures and larger portions of homeowners who are underwater on their mortgages,” the report reads.

Teta expounded on the continuing threat of the virus: “The US housing market keeps powering on despite of the coronavirus pandemic that’s still raging across the country,” he said. “Indeed, home prices keep rising in part because of the crisis. Nevertheless, the virus remains a potent threat to the broader economy and the housing market, with some of the same counties we’ve seen in the past continuing to look vulnerable to potential downturns. No immediate warning signs hang over any one part of the country, but pockets are more vulnerable to the market taking a turn for the worse.”

The most vulnerable counties named

  • The report differs from others given the granular nature of its research. Information was drawn from among 575 counties with enough data to be included in the report. To wit:
  • Eight counties in Chicago and its suburbs made the top 50 list. They were: Cook, DeKalb, DuPage, Kane, Kendall, Lake, McHenry and Will.
  • An equal number of most-vulnerable counties were found in the New York City metropolitan area, primarily in neighboring New Jersey where Bergen, Essex, Hunterdon, Middlesex, Ocean, Passaic and Sussex were found to be highly susceptible. Also in New Jersey, but counted as part of the Philadelphia region, were Burlington, Camden and Gloucester among the at-risk areas. Rockland County in New York also made the list.
  • In the same part of the country, Kent and Sussex counties also made the vulnerable list in the fourth quarter.
  • California also figured prominently, with seven counties in the top 50 list: Butte County (Chico), El Dorado County (east of Sacramento), Humboldt County (Eureka) and Shasta County (Redding) in the northern part of the state; as well as Kern County (Bakersfield), Madera County (outside Fresno) and Riverside County (east of Los Angeles) in the central and southern sections of the state.
  • Florida posted three among the top 50: Bay County (Panama City), Flagler County (Palm Coast) and Lake County (outside Orlando). 

Common threads: Unaffordable housing, underwater mortgages, foreclosures

Counties most at risk were found to have higher levels of unaffordable housing, underwater mortgages, and foreclosures, according to the ATTOM report. In those areas, major home ownership costs (mortgage payments, property taxes and insurance) on median-priced single-family homes consumed more than 30% of average local wages in 32 of the 50 counties that were most vulnerable to market problems connected to the virus pandemic in the fourth quarter of 2021. The highest percentages in those markets were in Rockland County, New York (outside New York City, 57.9% of average local wages needed for major ownership costs); El Dorado County, California, east of Sacramento, (with 52.5%); Riverside County, California, east of Los Angeles (52%); Bergen County, New Jersey, (47.6%) and Passaic County, New Jersey, (44.7%). Nationwide, the data showed major expenses on typical homes sold in the fourth quarter required 25.2% of average wages.

The report also showed that at least 10% of residential mortgages were underwater in the third quarter of 2021 (the latest data available on owners owing more than their properties are worth) in 18 of the 50 most at-risk counties. Nationwide, 7.1% of mortgages fell into that category, the findings showed. Those with the highest underwater rates among the 50 most at-risk counties were: Kennebec County in Augusta, Maine, with 29.6% of mortgages underwater; Webb County in Laredo, Texas with 23.3%; Kankakee County, Illinois outside Chicago, with 19%; Saint Clair County, Illinois, outside St. Louis, Missouri with 18.3%; and Cumberland County in Fayetteville, North Carolina with 8.1% of mortgages underwater.

Foreclosures abound after moratorium is lifted

The report found that more than one in 1,500 residential properties faced a foreclosure action in the fourth quarter of 2021 in 36 of the 50 most at-risk counties. Nationwide, one in 2,446 homes were in that position, the data showed. Foreclosure actions have risen over the past few months since the July 31 end of a federal moratorium on lenders taking back properties from homeowners who fell behind on their mortgages during the virus pandemic. The highest rates of post-moratorium foreclosures in the top 50 counties were in Saint Clair County, Illinois outside St. Louis, Missouri, where one in 121 residential properties faced possible foreclosure; Camden County, New Jersey, (one in 606); Sussex County, New Jersey, (one in 709); Cumberland County, New Jersey, (one in 743) and Cook County in Chicago (one in 757).

Least at-risk counties also part of the study mix

The ATTOM research also showcased counties least vulnerable to pandemic-fueled economic erosion, each area spread throughout the South, Midwest and West. Forty-two (42) of the 50 counties least vulnerable to pandemic-related problems from among the 575 included in the fourth-quarter report were in the South, Midwest and West. Just eight were in the Northeast.

  • Oregon had eight of the 50 least at-risk counties, including three in the Portland metropolitan area (Multnomah, Washington and Yamhill counties), while Washington had four, including King County (Seattle) and Spokane County. Colorado had three, including two in the Denver metropolitan areas (Denver and Arapahoe counties). Also on the list of least-vulnerable counties were Blount and Knox counties in the Knoxville, Tennessee, metro area; Erie and Niagara counties in the Buffalo, New York, metro area; along with Kent and Ottawa counties in the Grand Rapids, Michigan, area.
  • Others among the top-50 least at-risk counties that had a population of 500,000 or more included: Maricopa County (Phoenix, Arizona); Hennepin County in Minneapolis; Travis County that encompasses the state capital of Austin; Mecklenburg County in Charlotte, North Carolina; and Suffolk County where Boston is located.
  • While more than 10% of residential mortgages were underwater in the third quarter of 2021 (with owners owing more than their properties were worth), those with the lowest rates were Deschutes County where Bend, Oregon, is located. There, a mere 2% of mortgages were found to be underwater. Others similarly inured were Chittenden County (Burlington, Vermont) with 2% underwater; Travis County encompassing Austin, Texas, with 2.2% of mortgages underwater; Maricopa County (Phoenix) at 2.4% and Lane County (Eugene, Oregon) with just 2.5% of mortgages underwater.