Housing Risk Concentrated in Three States: California, New Jersey, and Illinois

The U.S. housing market continues to gain momentum, but certain regions are showing signs of potential instability. A new report by ATTOM has identified 51 counties across the country that are considered most exposed to housing risk. Nearly half of these counties are concentrated in just three states: California, New Jersey, and Illinois.

These counties tend to have a higher percentage of homes facing possible foreclosure, mortgage balances that exceed the value of the property (underwater mortgages), lower average annual wages, and higher local unemployment rates. These factors contribute to a greater likelihood of housing market issues.

The report analyzed 589 counties in the second quarter of 2024 and identified seven counties in and around New York City, five in the Chicago metropolitan area, and 12 in California as being at high risk. Other high-risk counties are scattered throughout the South, Midwest, and Northeast.

The report also examined the affordability of homeownership costs in these counties. It found that mortgage payments, property taxes, and insurance on median-priced single-family homes were "seriously unaffordable" in 33 of the most vulnerable counties. In these cases, such expenses consumed at least 43% of average local wages, compared to the national average of 35.1%.

In some counties, the burden of homeownership costs was even more severe. Kings County, NY (Brooklyn), had the highest percentage of household income consumed by homeownership expenses at 111.8%, followed by Riverside County, CA (74.4%), and Washington County, UT (St. George) at 70.4%.

While the average share of underwater mortgages in the high-risk counties was comparable to the national average, there were several counties with significantly higher rates. Tangipahoa Parish, east of Baton Rouge, LA, had the highest rate of underwater mortgages at 26%, followed by Peoria County, IL (16.3%), Lake County, IN (Gary) (13.2%), Orleans Parish, LA (New Orleans) (13.1%), and Montgomery County, OH (Dayton) (10.9%).

The report also analyzed the risk of foreclosure in these counties. In the 39 counties most vulnerable to market slides, one in every 1,000 residential properties faced foreclosure, compared to one in every 1,575 nationally.

On the other hand, there were 51 counties considered to be in the best shape. These counties were primarily located in the South, Midwest, and Northeast, with Virginia and Wisconsin having the highest concentration. Nashville and Knoxville areas in Tennessee also had a significant number of counties with low housing risk.

Conclusion

The U.S. housing market is showing signs of resilience, but certain regions are facing heightened risks. The report highlights the concentration of housing risk in California, New Jersey, and Illinois, where counties tend to have higher foreclosure rates, underwater mortgages, lower incomes, and higher unemployment.

While the national average for underwater mortgages and foreclosures is relatively low, there are specific counties with significantly higher levels of risk. Additionally, the affordability of homeownership costs is a major concern in many areas, particularly in the most vulnerable counties.

It is important to monitor these regions closely as the housing market continues to evolve. While these findings do not necessarily indicate an impending downturn, they highlight areas where potential instability may arise.

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Courtesy: Philippa Maister