Some real estate markets are more vulnerable to a downturn than others.
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Six of the 10 counties most vulnerable to a downturn are in New Jersey, according to a Special Housing Risk Report — which looked at the highest concentrations of the most at-risk markets in the first quarter of 2022 — released by ATTOM, a real estate data analytics company. (You can see the lowest mortgage rates you may qualify for here.)
Counties are seen as vulnerable depending on the percentage of homes facing foreclosure, the portion with 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. “Housing markets with poor affordability and relatively high rates of unemployment, underwater loans, and foreclosure activity could be at risk if we enter a recession or even face a more modest downturn,” explained Rick Sharga, executive vice president of market intelligence at ATTOM, in a statement.
| Most vulnerable to a downturn | Least vulnerable to a downturn |
| Passaic, NJ | Chittenden, VT |
| Essex, NJ | Benton, AR |
| Atlantic, NJ | Davidson, TN |
| Sussex, DE | King, WA |
| Kent, DE | Shelby, AL |
| DeKalb, IL | Durham, NC |
| Sussex, NJ | Tippecanoe, IN |
| Cumberland, NJ | Olmstead, MN |
| Will, IL | Williamson, TN |
| Union, NJ | Rutherford, TN |
Sharga explains that a number of New Jersey counties land on this list, as the state “endemically is prone to some risk factors, notably high prices which means a higher percentage of household income is required to maintain ownership” and is surrounded by New York City and Philadelphia, “whose economies were impacted by the pandemic and there’s a spillover into NJ because of that.”
New Jersey isn’t the only state with a cluster of vulnerable counties. Indeed, these three states housed 34 of the 50 counties most vulnerable to a potential decline, the report found. And of the 50 most at-risk counties, eight were in the Chicago metropolitan area (Cook, De Kalb, Kane, Kendall, Lake, McHenry and Will), 6 were in New Jersey, near New York City (Bergen, Essex, Ocean, Passaic, Sussex and Union, which are in New Jersey) and 10 were sprinkled throughout California (Butte, San Joaquin, Shasta, Solano, Fresno, Kings, Madera, Merced, Stanislaus and Kern).
This smattering of locales might seem geographically random because “rural northern California and the areas around NYC and Chicago don’t have much in common, but they do share slower home-price growth than the Sunbelt because their populations are growing more slowly,” says Holden Lewis, home and mortgage expert at NerdWallet. Adds Jacob Channel, senior economist at LendingTree: “Homes in the Chicago and NYC areas, as well as homes scattered across many parts of California, are often relatively expensive compared to houses in other parts of the country, and, because of this, people in these areas may need to stretch their budgets a bit more in order to be able to afford a home.” (You can see the lowest rates you may qualify for here.)
This, combined with an uncertain outlook for how the economies in those areas will fare in the face of continued high inflation and a potential recession, means that housing markets could be more vulnerable than average, pros say. “Of course, areas with high home prices can still have very robust housing markets, assuming that other aspects of their economy like unemployment are low. It’s important to keep in mind that just because there are some indicators that one area’s housing market might be more vulnerable than another, doesn’t mean those area’s markets are on the precipice of a major collapse,” says Channel.
The report reveals that major home ownership costs like mortgage payments, property taxes and insurance on median-priced single-family homes consumed more than 30% of average local wages in 25 of the 50 counties most vulnerable to market problems. The highest percentages in those markets were in San Joaquin County, CA with 48.9% of average local wages needed for major ownership costs, Bergen County, NJ with 48.3% of average local wages needed and Solano County, CA with 46.6% of average local wages needed for major ownership costs. To put that in perspective, the report suggests that nationwide, major expenses on typical homes sold in the first quarter of 2022 required 26.3% of average local wages. (You can see the lowest rates you may qualify for here.)
So what might this all mean for the housing market as a whole, and buyers in vulnerable counties?
Channel points out that the housing market as a whole doesn’t appear to be at a particularly heightened risk of collapse. “As of now, most data, like the nation’s low mortgage delinquency rate or the record amount of equity that homeowners are sitting on, still indicates that the majority of homeowners across the country are in a good place to keep up with their payments and aren’t at serious risk of defaulting on their loans,” says Channel.
But if you are looking to buy or sell in a vulnerable county, pros say it’s possible you could see heightened price cuts on homes and sellers more willing to negotiate with buyers. “This could lead to some good deals for those looking to buy a home, but keep in mind that given how much prices in many areas increased in 2020 and 2021, buyers may still need to deal with high home prices, even if they do drop a little bit,” says Channel.