Key Takeaways
- A report from ATTOM shows that counties in California, New Jersey and Illinois are among the most at-risk housing markets in the nation.
- Foreclosures, underwater mortgages and unemployment were higher in all of these markets, while housing markets in the South and Midwest had the least risk.
- The report comes as real estate analysts forecast housing prices to drop by 1% or more in 2024 as mortgage rates are expected to fall to around 6.5%.
After a tumultuous year where mortgage rates reached their highest levels in more than 20 years, experts expect a housing rebound in 2024, but a new report warns there are several markets at risk of seeing home values drop.
California, New Jersey and Illinois have some of the most at-risk housing markets in the country, as foreclosures, affordability, and mortgage rates have made counties in these states among the most vulnerable to declines in housing value, according to the Special Housing Risk Report from real-estate-data firm ATTOM.
The report, based on third-quarter data, comes as real estate experts are predicting improvement in the housing market in the coming year. Mortgage rates, which eclipsed 8% in 2023, are expected to drop to an average of 6.8%, dropping as low as 6.5% by the end of 2024, according to Realtor.com. This comes as home prices are set to drop by 1.7%. Real-estate brokerage Redfin has found similar optimism, forecasting that homes will be more affordable next year, as mortgage rates fall to 6.6%.
However, some places could remain vulnerable to trends that have hurt the housing market. The ATTOM report found counties around New York City and Chicago were some of the most vulnerable housing markets in the country, with central California also showing signs of weakness. Looking at third-quarter data like home affordability, underwater mortgages, foreclosures and unemployment, the report found that 33 of the 50 most vulnerable housing markets were in California, New Jersey and Illinois.
The concentration of issues in these areas comes when the housing market is producing mixed results, ATTOM said, with home prices and equity improving. At the same time, affordability worsens and foreclosure activity increases in these at-risk areas.
“It is important to stress that getting onto the most vulnerable list doesn’t signal an imminent crash for any local market,” said Rob Barber, CEO at ATTOM. “It just means that they have greater potential tripwires that could lead to a decline. Those remain areas to watch, especially given the overall varied trends in the market.”
In 30 of the 50 most-at-risk counties, at least 5% of the residential mortgages were “underwater,” where borrowers owed more than their home’s value. While the national unemployment rate is below 4%, in 35 of the most vulnerable markets, the rate was higher than 5%.
The top 50 counties also had higher rates of foreclosure filings, exceeding the national average of one in 1,389 homes with a foreclosure filing in the third quarter of 2023, with the highest being Cumberland County, New Jersey, where one in every 359 homes was in foreclosure.
The housing market was more secure in other areas of the country, especially the South, where 18 of the 50 least at-risk counties are located, while another 13 were in the Midwest and 12 were in New England. Only four of these counties were located in western states.
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