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Post: : These are the most — and least — vulnerable housing markets if the U.S. heads into a recession

With interest rates on a 30-year mortgage topping 6%, the housing market is under pressure. Some cites are feeling the brunt more than others.

If a major downturn hits the U.S. economy, home prices in the New York City, Chicago and Philadelphia areas are the most vulnerable to declines, according to a new report from real-estate data company Attom Data Solutions.

Risk factors included a high percentage of homes facing foreclosure and a big share of underwater mortgages in a given county. The report also considered relative wages and unemployment rates.

Nearly 600 counties in the U.S. were ranked using data from the second quarter of 2022.

“The Federal Reserve has promised to be as aggressive as it needs to be in order to get inflation under control, even if its actions lead to a recession,” said Rick Sharga, executive vice president of market intelligence at Attom.

“Given how little progress has been made reducing inflation so far, the Fed’s actions seem more and more likely to drive the economy into a recession, and some housing markets are going to be more vulnerable than others if that happens,” Sharga said.

Attom found that nine counties in and around New York City were the most vulnerable, with Kings County, or Brooklyn, and Richmond County, or Staten Island, at the top of the list.

Other counties in the region at an elevated risk include Bergen, Ocean, Passaic, Sussex, and Union counties in New Jersey and Essex County in upstate New York.

Six counties in the Chicago area and three in and around Philadelphia were also at the highest risk, according to Attom.

Part of the reason for the heightened risk in these areas is that many of their households have a bigger financial burden relative to their income. Mortgage payments, property taxes and insurance on a median-priced single-family home consumed a substantial portion of household income in those counties, Attom said.

For instance, in Brooklyn, nearly 103% of local average wages was needed to cover the costs associated with owning a home.

Housing markets in some counties are already showing signs of distress, Attom found.

Rockland County, N.Y., had the highest share of mortgages underwater, at 19.2%, in the first quarter of 2022. 

Lake County, Ind., which is in the Chicago region, also had 19.2% of mortgages underwater, followed by Peoria County, Ill., with 17.6% of mortgages.

Home ownership can be a costly undertaking, and not just because of the monthly mortgage payments.

Homeowners must also pay home insurance and property taxes and cover regular maintenance as well as unexpected costs, from repairs to furnishings. Two-thirds of new homeowners said that they felt “house rich and cash poor” due to unexpected costs, according to a recent survey by U.S. News and World Report of 2,000 American homeowners who bought their first home in 2021 or 2022.

More than half of the homeowners surveyed (56%) said they faced unexpected repairs costing between $500 and $1,000. 

The skyline of downtown Nashville, Tenn.

Getty Images/iStockphoto

On the flip side, Attom found that there are local markets where housing markets are not as vulnerable. 

Counties in the South and the Midwest were least vulnerable to contracting housing markets. Out of the top 50 counties least at risk of a housing decline during a downturn, six were in Tennessee, five were in Wisconsin, and four were in Arkansas.

Counties with the lowest risk include Davidson, Rutherford, and Williamson counties in and around Nashville, Tenn.

In Wisconsin, those counties include Green Bay’s Brown County, Madison’s Dane County, and Oshkosh’s Eau Claire, La Crosse and Winnebago counties.

Home ownership was far less costly in those regions. In Sebastian County, Ark., for example, only 16.5% of average local wages was required to cover major ownership costs.

“The ongoing wide disparities in risks throughout the country come during a time when the U.S. housing market faces headwinds that threaten to slow down or end an 11-year surge in home prices,” the report stated.

While falling home sales and higher rates have slowed the market, the report doesn’t suggest an imminent fall in prices, Attom said.

Still, with affordability worsening and foreclosures and delinquencies ticking up, the company noted, “Local markets [are] heading into that uncertain future facing significant differences in risk measures.”

Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com

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