Markets that enjoyed huge run-ups in prices during the pandemic-era housing boom are now among those most at risk for a major correction if the US economy enters a recession, according to an analysis by real estate firm Redfin.
Redfin noted that the US housing market has “slowed considerably” this spring due to soaring interest rates and decades-high inflation.
That means buyers who poured into “popular migration destinations” during the COVID-19 pandemic are likely to see price declines in those overheated markets.
The coastal city of Riverside, Calif. had the highest “downturn risk score” of 84 out of 100, followed the once-booming market of Boise, Idaho with a 76.9 rating and a smattering of cities in warm-weather locales across Florida, Arizona and California.
“What goes up must come down,” Redfin senior economist Sheharyar Bokhari said.
“Home prices soared at an unsustainable rate in many pandemic homebuying hotspots, both with second-home buyers and remote workers permanently relocating who were taking advantage of record-low mortgage rates,” Bokhari added.
Cape Coral, Fla. ranked third with a 76.7 rating among the markets most likely to experience a price drop, followed by North Port, Fla., (75), Las Vegas (74.2), Sacramento, Calif, (73.1), Bakersfield, Calif. (72.2), Phoenix, Ariz. (72), Tampa, Fla. (70.7) and Tucson, Ariz. (70.1)
Redfin determined the most “at-risk” markets through an analysis of 98 metro areas within the US for which enough data was available. Key data points included home-price volatility, average debt-to-income ratio and home-price growth, the firm said in a blog post.
“Demand driven by relocators and second-home seekers pulls back in an economic downturn, a trend that has already begun,” Bokhari added. “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.”
Redfin noted that nine of the 10 cities on the list had experienced growth in home prices that exceeded the national median year-over-year through May.
Despite the likelihood of a downturn, Bokhari said it was “unlikely” that the housing market will crash the way it did in 2008.
“The factors affecting the economy are different: Most homeowners have a fair amount of home equity and not much debt and unemployment is low,” he said.
On the opposite end of the spectrum, the city of Akron, Ohio ranked as the least likely to experience a housing downturn during a recession with a rating of just 29.6. Two cities in New York – Buffalo and Rochester – also landed near the bottom of the list.
Concerns about a significant downturn in the housing market are on the rise as the Fed’s policy tightening contributes to a spike in mortgage rates. The Fed hiked its benchmark rate by another three-quarters of a percentage point on Wednesday.
As The Post reported earlier this week, economist Ian Shepherdson of Pantheon Macroeconomics is predicting that home prices will sink “substantially” due to “cratering” buyer demand.
Ex-Brit turned Manhattan resident since 2008.