Housing risk intensifying in the East, Midwest and California

Despite high demand for homes and relatively low levels of distress due to the government relief applied as a result of the pandemic, pressure on certain local markets doesn’t seem to be letting up.

By the end of 2021, counties most vulnerable to housing stress remained concentrated in pockets of the East Coast, parts of the Midwest and California, despite some slight changes over the last half-year, according to the latest quarterly Attom report.

To get a sense of how entrenched some of the distress appears to be, consider that a state with a relatively high concentration of countries within the ranks of the 250 most vulnerable, like Florida, had 32 in this category in the fourth quarter, which was close to the number recorded at mid-year (31). Similarly, California’s count rose slightly to 27 from 26 in the same period. To be sure, some numbers in states where distress was concentrated did drop. Illinois saw the number of counties decline to 16 from 19, but generally change was limited.

“While no warning signs of imminent troubles are flashing, the considerable risk gaps between different parts of the country again point to places where cracks in the housing market foundation could appear if the pandemic endures long enough,” said Todd Teta, chief product and technology officer at Attom, in an email.

Attom ranks the most vulnerable counties based on three factors: affordability, and the concentration of foreclosures and underwater properties.

To get a sense of the gap in distress between the most vulnerable counties and others in the nation, consider that in 36 of the 50 most at-risk counties, one out of 1,500 residential properties faced a foreclosure action in the fourth quarter of 2021. In comparison, within the nation as a whole, just one out of 2,446 properties had a foreclosure action.

While underwater properties — those with values lower than the debt on the property — are scarce given the national run-up in home prices, in some vulnerable markets they are plentiful. In the particularly extreme case of Madison County in Mississippi, nearly two-thirds or 13,033 out of 19,775 properties with mortgages are underwater, according to Attom’s data.

However, Madison is lower on the list (172) because it has a lower foreclosure count than some other counties (0.016%) and it’s more affordable — the housing spend is generally 28.9% of income. In the most vulnerable county (Sussex, New Jersey), the foreclosure rate is much higher at 0.141%. There, people use 38.5% of their income to buy a home and nearly 9% of loans are underwater.

Whether these areas improve or worsen in their distress remains to be seen. Currently, Attom expects to see them stay the course but predicts further problems if the pandemic or inflation worsen.

“A myriad of variable forces…continue to hover over the housing market and the broader U.S. economy that could raise or lower risk levels from county to county,” Teta said. “As they have throughout much of the past year, those forces include the path of mortgage rates, inflation, the stock market and the pandemic.”