Riverside, Boise, Phoenix and Tampa are
among the markets where homeowners stand to lose some of the value
they gained over the past two years. Still-affordable Rust Belt
metros like Cleveland and Buffalo are most resilient.
(NASDAQ: RDFN) — Popular migration destinations where home
prices soared during the pandemic are most likely to see the
effects of a housing downturn amplified and home prices decline
year over year if the economy goes into a recession. This is
according to a new report from Redfin (redfin.com), the
technology-powered real estate brokerage, which also found that
relatively affordable northern metros are most resilient in the
event of a recession.
The U.S. housing market slowed considerably in the spring, with
5.5%-plus mortgage rates sending many buyers to the sidelines and
cooling competition. With the market already slowing from its
pandemic peak, Redfin analyzed which metros are most susceptible to
home-price declines if the country officially enters a
recession–and which are most resilient to an economic downturn.
Redfin’s analysis of housing markets in the 98 U.S. metros where
sufficient data was available uses several 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 likelihood of a housing market
downturn, including year-over-year home-price declines, while 0
represents the lowest likelihood. See Redfin’s report for the full
methodology.
“Recession fears are escalating, mostly because the Fed has
signaled it will continue to raise interest rates to tame inflation
and cool consumer demand. Higher interest rates led to surging
mortgage rates, which have already cooled down the housing market,”
said Redfin Senior Economist Sheharyar Bokhari. “If the U.S. does
enter a recession, we’re unlikely to see a housing-market crash
like in the Great Recession because the factors affecting the
economy are different: Most homeowners have a fair amount of home
equity and not much debt and unemployment is low.”
“But a recession–or even a continued economic downturn that
doesn’t reach recession levels–would impact some local housing
markets more than others, and there are a few factors that put
certain areas at risk,” Bokhari continued. “First, what goes up
must come down. Home prices soared at an unsustainable rate in many
pandemic homebuying hotspots. Additionally, places where people
tend to have high debt compared with their income and home equity
are vulnerable because their residents are more likely to foreclose
or sell at a loss.”
Even in the most vulnerable parts of the country, most
homeowners are likely to remain on solid footing, Bokhari said.
Home values may drop from the peak they reached in 2021 and early
2022, but the decline is only on paper for homeowners who are
staying put for at least a few years, as values typically increase
over time.
Migration destinations with rapidly rising home prices are
most at risk of a continued housing downturn
Riverside, CA has the highest chance of seeing its housing
market cool further if the U.S. enters a recession. It has an
overall risk score of 84, the highest of any major U.S. metro. That
means a combination of housing and economic data indicate it’s more
likely than other metros to see prices decline year over year
during a recession or continued economic downturn. Riverside, which
spans from eastern suburbs of Los Angeles like San Bernardino and
Ontario through the Palm Springs area, has highly volatile home
prices and it was a hot destination during the pandemic, both for
people permanently relocating and those buying second homes.
Riverside is followed by Boise (76.9), Cape Coral, FL (76.7),
North Port, FL (75) and Las Vegas (74.2). Sacramento, CA (73.1),
Bakersfield, CA (72.2), Phoenix (72), Tampa, FL (70.7) and Tucson,
AZ (70.1) round out the top 10.
Like Riverside, many of those housing markets are popular
migration destinations and/or places with rapidly rising home
prices, both factors that are major contributors to their risk of
suffering from a housing downturn. Additionally, Boise, Cape Coral,
North Port, Las Vegas, Sacramento and Phoenix were all among the 20
fastest-cooling markets as of May, when mortgage rates approached
5.5%. That’s an indicator that prices are more likely to drop in
many of those metros as the economy continues to contract.
Six of the 10 areas most at risk of downturns are among the most
popular destinations for Redfin.com users moving from one metro to
another. Maricopa County (Phoenix) and Riverside County gained more
residents from other parts of the U.S. than anywhere else in 2021,
according to the U.S. Census.
The most at-risk metros have also experienced outsized price
growth. North Port, where home prices increased 30.5% year over
year in May, has the nation’s fastest-growing prices, followed by
Tampa (28.1%) and Las Vegas (26.8%). All in all, nine of the 10
most at-risk areas have faster-growing home prices than the
national median (Sacramento is the exception, but home prices there
did rise more than 40% during the pandemic, reaching $610,000 in
May 2022).
Several of those metros moved from affordable to
not-so-affordable during the pandemic, partly due to the influx of
people moving in from other areas. Those include Boise, where the
median home price grew from $330,000 to $550,000 from May 2020 to
May 2022, and Phoenix, where it went from $300,000 to $485,000.
“Boise’s market is already turning around, as a lot of the
people who moved to Idaho during the pandemic are either moving
back to their hometowns or cashing in and moving to more affordable
places. The housing market was hot during the pandemic, largely
because of out-of-town buyers,” said Boise Redfin agent Shauna
Pendleton. “Sellers are asking me if the cash buyers from
California are still around, hoping they’ll swoop in and offer to
buy their home for more than the asking price–but that’s not
happening much anymore, and the cash buyers who are in the market
are often offering below the asking price. I don’t expect home
values to plummet, but we do need to come down from the clouds at
some point and sellers need to adjust their expectations to the new
reality: There are more homes on the market, fewer buyers, and a
higher chance that buyers can’t pay the asking price because their
monthly payments have shot up due to rising rates.”
“But buyers have more to choose from, less likelihood of
entering a bidding war and more time to make major financial
decisions,” Pendleton continued. “Even if higher rates mean buyers
need to look at less expensive homes, they’re still likely to get a
better deal than a year ago because homes aren’t being bid up way
over the asking price. And if home prices do decline, more people
will be able to afford homes in places where they may have been
priced out at the height of the buying frenzy.”
Relatively affordable Rust Belt metros are most resilient in
the face of a recession
Akron, OH has the lowest chance of a housing downturn if the
U.S. enters a recession. It has an overall risk score of 29.6, the
lowest of any major U.S. metro. Some factors that make Akron
relatively resilient are low home-price volatility, low
debt-to-income ratio, relatively few second homes and the fact that
homes there are unlikely to be flipped.
Akron is followed by Philadelphia, with an overall risk score of
30.4, Montgomery County, PA (31.4), El Paso, TX (32.2) and
Cleveland (32.4). Cincinnati (32.6), Boston (32.6), Buffalo, NY
(33.1), Kansas City, MO (33.4) and Rochester, NY (34) round out the
top 10. Nearly all of those metros are affordable with relatively
slow-increasing prices, both factors that would help their housing
markets in the face of a recession. Prices rose slower than the
national median in nine of the 10 most resilient metros (El Paso is
the exception).
Seven of the 10 metros least at risk of a housing downturn had a
median sale price lower than $300,000 in May, and in nine of them
it’s lower than the national median of $431,000. Affordability
helps housing markets in a recession because it means people are
more likely to be able to buy homes, and those places may attract
people from out of town looking for lower prices.
To view the full report, including full metro-level data and
methodology, please visit:
https://www.redfin.com/news/metros-recession-risk-housing-downturn-2022
About Redfin
Redfin (www.redfin.com) is a technology-powered real estate
company. We help people find a place to live with brokerage,
instant home-buying (iBuying), rentals, lending, title insurance,
and renovations services. We sell homes for more money and charge
half the fee. We also run the country's #1 real-estate brokerage
site. Our home-buying customers see homes first with on-demand
tours, and our lending and title services help them close quickly.
Customers selling a home can take an instant cash offer from Redfin
or have our renovations crew fix up their home to sell for top
dollar. Our rentals business empowers millions nationwide to find
apartments and houses for rent. Since launching in 2006, we've
saved customers more than $1 billion in commissions. We serve more
than 100 markets across the U.S. and Canada and employ over 6,000
people.
For more information or to contact a local Redfin real estate
agent, visit www.redfin.com. To learn about housing market trends
and download data, visit the Redfin Data Center. To be added to
Redfin's press release distribution list, email press@redfin.com.
To view Redfin's press center, click here.
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version on businesswire.com: https://www.businesswire.com/news/home/20220726005354/en/
Redfin Journalist Services: Angela Cherry, 913-638-8249
press@redfin.com
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