Areas around New York City and Chicago are among those most vulnerable to declining home values during the current slowdown in the US housing market, according to new research released Thursday.
Of the 50 US counties most likely to experience price declines, nine are located either in or near New York City, according to real estate data firm Attom.
Another six at-risk counties are located near the Chicago metro area, while 13 are scattered across the state of California.
Attom’s report was based on an analysis of four categories: residential foreclosure data, home affordability levels, the number of “underwater” homeowners whose remaining mortgage balance exceeded their property value and local unemployment figures.
The categories were used to compile a composite ranking for 575 counties across the country for which sufficient data was available. Counties that ranked the lowest — such as those in the New York City area — were deemed to be the most “at risk” for a downturn.
The Federal Reserve’s move to tighten monetary policy in response to decades-high inflation has also played a key role in the housing market’s recent slump.
Mortgage rates topped 6% this week for the first time since 2008, driving many prospective homebuyers to the sidelines and hampering demand until conditions improve.
“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,” said Rick Sharga, Attom’s executive vice president of market intelligence.
In New York, two of the most at-risk counties, Kings and Richmond, are located within the city. Kings County includes Brooklyn, while Richmond County includes Staten Island.
Six of the remaining counties – Bergen, Essex, Ocean, Passaic, Sussex, and Union – are in New Jersey, while the seventh is Rockland County in New York.
The firm noted that sales of both existing and new homes are on the decline as homeowners react to the spike in mortgage rates. While the Fed’s interest rate hikes do not have a direct impact on mortgages, rates typically rise during periods of policy tightening on the expectation that borrowing money is becoming more expensive.
Bloomberg was first to report on the data.
Inflation is also hovering near its highest level in four decades, adding to an affordability crunch for buyers who also have to account for home prices that spiked when the housing market was red-hot during the COVID-19 pandemic.
Despite the slump, Attom said its findings on the most at-risk areas “do not suggest an imminent fall in housing markets anywhere in the nation.”
A growing number of experts have warned of a housing downturn in recent months, though most agree that it will not approach the depths reached when the market imploded during the Great Recession.
The number of Manhattan homes in contract declined a whopping 39% year-over-year, according to a recent report from brokerage firm Serhant.