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Here Are the Markets at Risk for Falling Home Prices

Updated: Jun 11, 2022

By Paul Bergeron

March 17, 2022 at 07:35 AM

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CoreLogic’s Market Risk Indicator points to Worcester, Mass.; Kalamazoo, Mich., among others.

Markets, where home prices have accelerated most in the past year, are not necessarily the areas most likely to see falling prices, according to CoreLogic.

While Arizona and Florida are dominating that high-flier list, it’s areas such as the Northeast and Upper Midwest that could be most ripe for declines.

According to the December CoreLogic Market Risk Indicator, only 12 metro areas had over a 50% probability of a price decline in 12 months. One-third of the metro areas had a less than 10% probability of a price decline.

Declines generally are driven by a higher rate of unemployment, lower income growth, and/or a lower rate of population growth—that’s why areas such as Worcester, Mass., and Kalamazoo, Mich., are on the list.

Nonetheless, also included in CoreLogic’s list of susceptible markets are Merced, Calif.; and Prescott, Ariz.

On the other hand, the areas that are considered overvalued, but remain with a low risk of price decline, are supported by low unemployment rate and stronger income growth largely brought on by in-migration of populations with higher incomes and solid housing starts.

These areas include Florida’s Destin, Naples, Cape Coral, and North Port; as well as Austin, Texas; and Flagstaff, Ariz.

Home Price Surge Triple the Decade Prior

In 2021, home price growth surged to a 15% annual increase from 2020. This is triple the average rate seen in the decade prior.

Although home price gains are expected to slow in 2022 and average a little less than 10% growth for the year, the recent rapid acceleration in prices has led to overvaluations in some markets, therefore pushing up the risk of price decline in the year ahead.

Even when and while home prices are increasing nationally, there are still places where home prices could be falling. Prior to 2006—a period when home prices grew steadily—an average of 4% of US metro areas saw price declines.

More recently, when the pandemic started in 2020, some 15% of the US urban areas saw price declines. That share dropped to near zero during 2021.

Supply Shortages Could Factor

Kim Lanham, senior vice president, Digital Risk, tells that she believes while prices rise, the extreme supply shortages across the county will continue to exacerbate this problem in most areas.

“While some areas may start to see a decline and overvaluation there are still enough borrowers willing to make the purchase, many who are waiving appraisals as a reason to back out of the deal and make up the difference with cash,” Lanham said. “Also, valuation models are having a difficult time keeping up with the rapid increases and finding comparable properties.”
North Dakota, Illinois, Louisiana, Mississippi and several states in the northeast that are losing population to other states may see this decline faster than others, she said, “but with over 4 million borrowers still looking there is no shortage of buyers. Increasing interest rates could affect the price ranges of some borrowers forcing them to downgrade expectations if they need to move quickly.”

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