Those who remember the housing bust in the 2000s, and the glut of foreclosed and abandoned homes that followed, might wonder if another one is just around the corner.
While most real estate experts don’t believe another housing crash will materialize anytime soon, there are housing markets that are more prone to another downturn than others. The most vulnerable states are California, New Jersey and Illinois, according to a special housing risk report from real estate data firm ATTOM. New York City had the most neighborhoods that could be at risk.
These three states had 33 of the 50 counties that were the most vulnerable to experiencing large price drops.
The report looked at home affordability, foreclosures, underwater mortgages, and unemployment in 578 counties with enough data to analyze in the third quarter of 2023.
“Some parts of the country continue to pop up on the radar as places to watch for signs of housing-market drop-offs,” ATTOM CEO Rob Barber said in a statement.
The housing market and the general economy remain strong, despite the fast run-up in home prices over the past few years. Unlike during the Great Recession, there are now more buyers than there are homes available. And in the wake of the last housing bubble, changes were made to lending to ensure that only the most qualified buyers, who are unlikely to default, are given loans.
In addition, most homeowners are sitting on some substantial home equity thanks to that strong home appreciation. Unemployment remains low. So if homeowners were to run into some financial trouble, many would be able to sell their homes and even pocket a profit in some cases rather than succumbing to a foreclosure.
“It is important to stress that getting onto the most-vulnerable list doesn’t signal an imminent crash for any local market,” Barber said. “It just means that they have greater potential tripwires that could lead to a decline.”
Which housing markets are the most vulnerable to a downturn?
The New York City housing market had the most at-risk counties. There were nine counties in and around the nation’s largest city, including Kings (aka Brooklyn), Richmond (aka Staten Island), and the Bronx. The other six counties were in the New Jersey suburbs: Bergen, Essex, Ocean, Passaic, Sussex, and Union.
New York City was closely followed by the Chicago metropolitan area, which had seven vulnerable counties. The most at-risk were Cook, DeKalb, Kane, Lake, McHenry, and Will in Illinois and Lake in Indiana.
There were five in Central California: Fresno, Madera (near Fresno), Merced (near Fresno), San Joaquin County (Stockton), and Stanislaus (Modesto.)
These counties are riskier because they have higher unemployment rates and higher percentages of homeowners who have received a foreclosure notice or owe more than their properties are worth.
“Those remain areas to watch, especially given the overall varied trends in the market,” Barber said.
Which housing markets are the least vulnerable to a downturn?
The housing markets that are the least at risk of another housing crash are predominantly in the South, followed by the Midwest, and then New England. These areas tended to have strong employment and fewer homeowners who were in danger of losing their homes to foreclosures.
Seven of the 50 least vulnerable counties were in Tennessee, with three in the Nashville area (Davidson, Rutherford, and Williamson) and two in the Knoxville area (Blount and Knox).
Four counties were in Wisconsin and another four were in Virginia, which included Alexandria and Fairfax in the Washington, DC, area. The Boston metropolitan area also had four very stable counties, with Middlesex and Sussex in Massachusetts and Rockingham and Strafford in New Hampshire.
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