Buying hot spots of housing with high price growth are very vulnerable to the housing downturn in low-income households

Popular immigration destinations that saw home prices rise during the pandemic are more likely to experience year-over-year home price declines if housing foreclosures increase and the economy slips into recession, according to a new report from tech-enabled realty Redfin. Realtor, who also found that relatively affordable northern metros are the most resilient during recessions.

The housing market fell sharply in the spring, from 5.5% – plus mortgage rates sent many buyers on the sidelines and cooling competition. As the market slows from the peak of the pandemic, Redfin analyzes which metros are most vulnerable to home-price declines if the country officially enters recession and which are most resilient to an economic downturn.

Redfin’s analysis of the housing market in 98 US metros with sufficient data uses housing-related indicators for each metro, including home price volatility, average debt-to-income ratio and home-price growth. Each metro is assigned an overall risk score, relative to the other metros in the analysis: 100 represents the highest probability of a housing market downturn, including year-over-year home price declines, and zero represents the lowest probability.

“Fears of a recession are rising, as the Fed continues to raise interest rates to control inflation and dampen consumer demand. Higher interest rates have dampened the housing market and led to higher mortgage rates,” said Shahriar Bokari, senior economist at Redfin. “We’re unlikely to see a recession-style housing market collapse because the factors affecting the economy are different: Most homeowners have decent home equity and not much debt, and unemployment is low,” he said.

“But a recession—or a sustained recession that doesn’t reach the level of a recession—will affect some local housing markets more than others, and there are a few factors that put certain areas at risk,” Bokhari said. “What goes up must come down first. Home prices in many epidemic home-buying hotspots have risen at unsustainable rates. Additionally, areas where people have high debt relative to their income and home equity are at risk because their residents are more likely to foreclose or sell at a loss.

Bokhari noted that even in the most vulnerable parts of the country, most homeowners can remain on solid footing. Home prices in 2018 They may drop from their highs in 2021 and early 2022, but that’s only on paper for homeowners who are sitting on the sidelines for at least a few more years as values ​​continue to rise over time.

Migration destinations with rapidly rising home prices are most vulnerable to continued housing declines.

Riverside, Calif. If the U.S. enters a recession, it’s likely to see the housing market cool. It has an overall risk score of 84, the highest of any major metro. This means that the combination of housing and economic data is more likely than other metros to see price declines or year-over-year declines as the recession continues. Riverside, in the Palm Springs area of ​​Los Angeles’ eastern suburbs like San Bernardino and Ontario, has the most volatile home prices, and was a hot destination during the pandemic, for those moving permanently and buying second homes.

Riverside is followed by Boise (76.9), Cape Coral, Florida (76.7), North Port, Florida (75) and Las Vegas (74.2). Sacramento, California (73.1), Bakersfield, California (72.2), Phoenix (72), Tampa (70.7) and Tucson, Arizona (70.1) round out the top 10.

Like Riverside, most housing markets are popular migration destinations and/or areas with rapidly increasing home prices, both factors that are major contributors to the risk of a housing downturn. Additionally, Boise, Cape Coral, North Port, Las Vegas, Sacramento and Phoenix were all among the 20 fastest-cooling markets since May, when mortgage rates approached 5.5 percent. This is an indicator that prices in those metros are more likely to decline as the economy continues to contract.

Six of the top 10 areas are the most popular destinations for users to move from one metro to another. Maricopa County (Phoenix) and Riverside County will gain more residents in 2021 than anywhere else in the U.S., according to the U.S. Census.

The most vulnerable metros also experienced excessive price growth. North Port, where home prices rose 30.5 percent year-over-year in May, is the nation’s fastest growing, followed by Tampa (28.1 percent) and Las Vegas (26.8 percent). Overall, nine of the 10 most vulnerable areas had the fastest growing home prices, except for Sacramento, the national median, but home prices there rose more than 40% during the pandemic, reaching $610,000 in May 2022.

Many of those metros have moved from affordable to unaffordable during the pandemic, in part because of the influx of people from other areas. They include Boise, where the median home price grew from $330,000 to $550,000 from May 2020 to May 2022, and Phoenix, where it grew from $300,000 to $485,000.

“The Boise market is already changing as many people who moved to Idaho during the pandemic are returning to their hometowns or saving up and moving to more affordable areas,” said Boise Redfin agent Shauna Pendleton.

“During the pandemic, the housing market was hot, mainly because of out-of-town buyers,” she explained. Sellers are asking me if there are still cash buyers from California hoping to come in and buy their home above asking price – but that’s not happening very often and cash buyers on the market often offer below asking price. I don’t expect home values ​​to fall, but at some point we will have to come down from the clouds and sellers will have to adjust their expectations to the new reality: There are more homes on the market, fewer buyers and more opportunity. Buyers are unable to pay the asking price as their monthly payments increase.

“But buyers have more choices, less chance of getting into a bidding war, and more time,” Pendleton added. “While higher prices mean buyers are looking at less expensive homes, they may be able to get a better deal than a year ago because homes are not being bid above asking price. And if home prices fall, more people will be able to buy homes in areas that are undervalued by the buying curve.

Relatively affordable, Rust Belt metros are the most resilient in the face of recessions.

Akron Ohio is the least likely to experience a housing downturn if the US enters a recession. It has an overall risk score of 29.6, the lowest of any major metro. Some of the factors that make Akron relatively stable include low home-price volatility, a low debt-to-income ratio, relatively few second-hand homes, and homes there are more likely to flip.

Akron is followed by Philadelphia, with an overall risk score of 30.4; Montgomery County, Pennsylvania (31.4); El Paso, Texas (32.2) and Cleveland (32.4). Cincinnati (32.6), Boston (32.6), Buffalo, New York (33.1), Kansas City, Missouri (33.4) and Rochester, New York (34) round out the top 10. Rising prices, both things that help their housing market in the face of a recession. In the 10 strongest metros, rates rose slower than the national median. El Paso is an exception.

Seven of the 10 metros exposed to the housing downturn had a median sales price below $300,000 in May, and nine below the national median of $431,000. Developing affordability helps lower-income housing markets because people are more likely to buy homes and those areas can attract people from out-of-towners looking for lower prices.

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