While visions of a housing market meltdown haunt some buyers more than a decade after the Great Recession, many economists don’t anticipate widespread home value declines even if a recession hits again.
The combination of more highly qualified homeowners with extensive home equity, low unemployment and the continued shortage of homes is likely to keep values stable in most places. However, all real estate is local, and some markets are more vulnerable than others to a downturn.
Markets that have seen steep home price increases and high levels of in-migration are more likely to see homes lose some value, compared with other more stable markets, according to a new report from Redfin real estate brokerage. Housing markets where home values increased more slowly are expected to be more resilient to a recession if one occurs.
Riverside, Calif.; Boise; Phoenix; and Tampa are some of the top markets where homeowners may lose some of the value gained during pandemic-fueled demand and price hikes, according to the report.
Redfin’s analysis is based on multiple housing-related factors, such as home price growth, home price volatility and the average debt-to-income ratio of homeowners. The inclusion of that debt ratio is because homeowners with higher levels of debt are more likely to need a foreclosure or short sale if they cannot pay their mortgage, which drives overall home prices lower.
Each housing market analyzed was given a risk score, with zero representing the least likelihood of price declines when comparing values year-over-year, and 100 representing the greatest likelihood of a housing market downturn.
Riverside received a score of 84, putting it at the highest risk of home price declines should a recession begin. The other markets in the top 10 most at risk include Boise (76.9), Cape Coral, Fla. (76.7), North Port, Fla. (75), Las Vegas (74.2), Sacramento (73.1), Bakersfield, Calif. (72.2), Phoenix (72), Tampa (70.7) and Tucson (70.1).
Most of these markets are places that attracted new buyers during the pandemic and that saw sharp home price increases. For example, the median sales price in Boise rose from $330,000 in May 2020 to $550,000 in May 2022. In Phoenix, the median sales price rose from $300,000 in May 2020 to $485,000 in May 2022. In addition, several were also among those that cooled off quickly when mortgage rates rose above five percent in May.
The housing markets anticipated to be more resilient to a recession are mostly locations where homes are more affordable, compared with the rest of the country and where prices remained relatively steady since the pandemic began.
The 10 markets with the lowest Redfin scores – meaning they’re less likely to experience price reductions – include: Akron (29.6), Philadelphia (30.4), Montgomery County, Pa. (31.4), El Paso (32.2), Cleveland (32.4), Cincinnati (32.6), Boston (32.6), Buffalo (33.1), Kansas City, Missouri (33.4) and Rochester, N.Y. (34).
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