Housing threat is rising within the East, Midwest and California

Despite high demand for housing and relatively little distress due to government relief in the wake of the pandemic, pressure on certain local markets does not appear to be abating.

Through the end of 2021, the counties most prone to housing shortages continued to be concentrated in areas on the East Coast, parts of the Midwest and California, despite some minor changes over the past half-year, according to the latest quarterly Attom report.

To get a sense of how ingrained some of the hardship seems to be, consider that a state with a relatively high concentration of countries in the ranks of the top 250 most vulnerable countries, such as Florida, lost 32 in this fourth quarter category had what was close to the mid-year number (31). Similarly, in California, the number rose slightly from 26 to 27 over the same period. Certainly, some numbers in states where need was concentrated declined. In Illinois, the number of counties decreased from 19 to 16, but in general the change was limited.

"While there are no warning signs of imminent trouble, the significant risk gaps between different parts of the country point again to places where cracks in the housing market foundation could appear if the pandemic lasts long enough," said Todd Teta, chief product and technology officer at Attom, in an email.

Attom ranks the most vulnerable districts based on three factors: affordability and the concentration of foreclosures and underwater properties.

To get a sense of the gulf in distress between the most vulnerable counties and others across the country, consider that in 36 of the top 50 most vulnerable counties, one in 1,500 residential properties faced foreclosure in the fourth quarter of 2021. In comparison, across the country, only 1 in 2,446 properties had a foreclosure.

While underwater real estate — those with a value lower than the debt on the property — is scarce given the national surge in house prices, it's plentiful in some vulnerable markets. In the particularly extreme case of Madison County, Mississippi, nearly two-thirds, or 13,033 of 19,775 properties with mortgages are under water, according to Attom data.

However, Madison is lower on the list (172) because it has a lower rate of foreclosures than some other counties (0.016%) and is more affordable – housing spending is generally 28.9% of income. In the highest-risk county (Sussex, New Jersey), the foreclosure rate is much higher at 0.141%. There, people spend 38.5% of their income on buying a home and nearly 9% of loans are underwater.

Whether these areas will improve or worsen in their distress remains to be seen. For now, Attom expects them to stay the course, but predicts more trouble if the pandemic or inflation worsens.

"A variety of variable forces … continue to linger over the housing market and the broader U.S. economy that could increase or decrease risk levels from county to county," Teta said. "As for much of the past year, these forces include the path of mortgage rates, inflation, the stock market and the pandemic."

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