December 3, 2023

With interest rates over 6% on 30-year mortgages, the housing market is under pressure. Some quotes are feeling the brunt more than others.

According to a new report from a real estate data company, home prices in the New York City, Chicago and Philadelphia areas are most vulnerable to declines if a major recession hits the US economy. atom data solutions,

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

About 600 counties in the US were ranked using data for the second quarter of 2022.

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

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

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

Other counties in the high-risk zone include Bergen, Ocean, Pacific, Sussex, and Union counties in New Jersey and upstate Essex County in New York City.

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

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The reason for the increased risk in these areas is that many of their families have a higher financial burden than their income. Atom said mortgage payments, property taxes and insurance on an average-priced single-family home consumed a substantial portion of household income in those counties.

For example, in Brooklyn, about 103% of the local average wage was required to cover the costs associated with owning a home.

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

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

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

Home ownership can be an expensive undertaking, and not just because of the monthly mortgage payment.

Homeowners will also have to pay home insurance and property taxes and cover unforeseen costs along with regular maintenance from repairs to furnishings. Two-thirds of new homeowners said they felt “home rich and cash poor” because of unexpected costs, according to a recent report. Survey by US News and World Report Out of 2,000 US homeowners who bought their first home in 2021 or 2022.

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

City skyline of Nashville, Tenn.

Getty Images/iStockPhoto

On the other hand, Atom found that there are local markets where housing markets are not as vulnerable.

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

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Countries at the lowest risk include Davidson, Rutherford and Williamson counties 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 much less expensive in those areas. For example, in Sebastian County, Ark., only 16.5% of the average local wage was required to cover major ownership costs.

“The ongoing wide disparities in risks across the country come at a time when the US housing market faces barriers that threaten to slow or end an 11-year rise in home prices,” the report said. “

Atom said declining home sales and higher rates have slowed the market, but the report does not indicate an imminent fall in prices.

Nevertheless, with affordability deteriorating and foreclosure and crime increasing, the company said, “The local market [are] Facing significant differences in risk measures, we are heading towards that uncertain future.”

Got ideas on the housing market? Write to Marketwatch reporter Aarti Swaminathan at [email protected]