Housing markets that have surged in popularity during the coronavirus pandemic and seen rapidly rising house prices are most susceptible to a housing downturn in the event of a recession, according to a new report from the real estate brokerage firm at full Redfin service.
The housing market has already “slowed considerably” this spring as rising mortgage rates forced many potential buyers out of the market, according to Redfin. A weekly survey of mortgage rates by Freddie Mac shows the 30-year rate at 5.3%.
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Now, with fears of a continued economic slowdown, the brokerage has analyzed which metros would be most sensitive to falling house prices if the country enters a recession and which would be the most resilient.
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According to its analysis of 98 U.S. metros, homeowners in certain markets in California, Idaho, Arizona and Florida have the highest likelihood of a housing market downturn, including lower prices homes from one year to the next, if the US economy falls into recession.
Redfin’s chief economist, Sheharyar Bokhari, said the country was unlikely to see a property market crash – like what happened during the Great Recession – because factors impacting the economy are different. For one thing, homeowners have good home equity and little debt. On top of that, unemployment is low.
Still, some regions are more at risk if a recession — or even a continued economic slowdown that does not reach recession levels — were to occur, Bokhari said.
Home prices have soared at an unsustainable pace in many pandemic homebuying hotspots.
“First, what goes up must come down. House prices have been climbing at an unsustainable rate in many pandemic homebuying hotspots,” Bokhari added. “Additionally, places where people tend to have high debt relative to their income and home equity are vulnerable because their residents are more likely to foreclose or sell at a loss.”
According to the data, Riverside, Calif., which covers the eastern suburbs of Los Angeles through the Palm Springs area, has the highest likelihood of year-over-year price declines during a recession or economic downturn. continued.
He had an overall risk score of 84 out of 100.
Boise, Idaho, came in second with a score of 76.9 followed by Cape Coral and North Port in southwest Florida, which scored 76.7 and 75, respectively, according to the data.
Boise Redfin agent Shauna Pendleton does not expect home values to fall, although she noted that sellers need to adjust their expectations due to the current market.
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There are more homes, fewer buyers, and a higher chance that buyers won’t even be able to afford the asking price because their monthly payments have gone up, Pendleton said.
Last week, the 30-year rate rose to 5.54% from 5.51% the previous week, according to mortgage buyer Freddie Mac.
However, on Wednesday, the Federal Reserve raised borrowing rates in an effort to control inflation, which will make it even more expensive to take out a mortgage.
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Here are the top ten markets most sensitive to a real estate slowdown:
- Riverside, CA: 84
- Boise, Idaho: 76.9
- Cape Coral, Florida: 76.7
- North Port, Florida: 75
- Las Vegas, NV: 74.2
- Sacramento, CA: 73.1
- Bakersfield, CA: 72.2
- Phoenix, Arizona: 72
- Tampa, Florida 70.7
- Tucson, Arizona 70.1
For its analysis, Redfin analyzed real estate market risk based on a variety of factors, including house price volatility, average debt-to-income ratio and house price growth. Each subway received an overall risk score out of 100.