Home Buying Hazard: Top U.S. Cities Where Your Investment May Sink, According To 'Special Housing Risk Report'

California, New Jersey, and Illinois face heightened housing market risks, marked by a concentration of counties vulnerable to market downturns.

Identified in a "Special Housing Risk Report" issued by ATTOM on Thursday, the study analyzed data from 590 counties across the U.S. and found wide disparities in housing market stability. Focusing on indicators like home affordability, underwater mortgages, foreclosure rates, and local unemployment, the report aimed to identify how market dynamics in those states contrast with less vulnerable areas predominantly located in the South and Midwest.

In regions like Kings County, New York, homeownership costs 109.5% of the average local wages, the highest across the surveyed areas. Similarly, El Dorado County, California, and Passaic County, New Jersey, report homeownership expenses consuming 64% and 62.1% of local incomes, respectively. 

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In Illinois, particularly around Chicago, counties including DeKalb, Kane, Kendall, McHenry, and Will are dealing with similar economic pressures, with homeownership costs straining local incomes. The figures exceed the national average, where major homeownership expenses in the first quarter required 32.3% of average local wages.

"The patterns of varying market vulnerability that we've been seeing over the past few years are pretty much continuing in place, with some of the same areas falling out at opposite ends of the trend line," Rob Barber, ATTOM CEO, said in the report.

Underwater Mortgages and Foreclosure Rates

The positions many homeowners find themselves in are complicated by the widespread presence of underwater mortgages, ATTOM found. For instance, in Webb County, Texas, 31.5% of residential mortgages are underwater, meaning the homeowners owe more on their mortgages than their properties are worth. 

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ATTOM saw similar situations in Tangipahoa Parish, Louisiana, with 21.2%, and Livingston Parish, Louisiana, with 20.6%.

Foreclosures are another issue facing high-risk counties.

Osceola County, Florida, saw the highest foreclosure-case rate, with one in every 480 residential properties facing possible foreclosure actions. It is closely followed by Cumberland County, New Jersey, and Warren County, New Jersey, the report found.

Unemployment as a Compounding Factor

Unemployment rates also play a role in vulnerabilities, ATTOM said. In central California, Tulare County reports the highest unemployment rate at 12%, impacting the economic stability of its residents.

Other central California counties, like Merced and Kern, reflect similar challenges, with unemployment rates exceeding 10%. Meanwhile, the areas surrounding Chicago are grappling with unemployment rates that, while slightly lower, still impact the economic well-being of communities and contribute to the risks in the housing market.

Less Vulnerable Markets

Contrastingly, the least vulnerable markets, predominantly located in the South and Midwest, show a different economic picture.

In those areas, like Virginia and Wisconsin, major homeownership costs are more in line with or below the national average.

Counties like Gallatin, Montana, and Williamson, Tennessee, although still requiring a high portion of local wages for homeownership costs, do not face the high rates of underwater mortgages or foreclosures in the more vulnerable areas.

According to the report, those less vulnerable counties also benefit from relatively low unemployment rates. For example, Chittenden County, Vermont, has one of the lowest unemployment rates at 1.4%, contributing to its stability and lower risk of housing market downturns.

"Once again, this is not to suggest that any one market is facing imminent decline. It's more a measure of vulnerability gaps," the ATTOM CEO said. "But with the housing market slowing down over the past year, some metro areas appear notably better positioned than others to withstand a scenario of the market topping out and heading downward."

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