These U.S. real estate markets are most at risk from falling prices

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Markets that saw huge price increases during the pandemic-era housing boom are now among the most at risk of a major correction if the U.S. economy slips into a recession, according to analysis by real estate firm Redfin.

Redfin noted that the U.S. housing market has “slowed significantly” this spring due to soaring interest rates and decades-high inflation.

That means shoppers who have flocked to “popular migration destinations” during the COVID-19 pandemic will likely see lower prices in these overheated markets.

The coastal town of Riverside, California had the highest “downside risk score” of 84 out of 100, followed by the once-booming market of Boise, Idaho with a score of 76.9 and a handful of cities in hot spots across Florida, Arizona and California.

“What goes up must come down,” said Redfin chief economist Sheharyar Bokhari.

“Home prices have soared at an unsustainable rate in many pandemic homebuying hotspots, with both second-home buyers and remote workers constantly moving and taking advantage. record mortgage rates,” Bokhari added.

Boise, Idaho is one of the markets most at risk of a downturn.
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Cape Coral, Florida ranked third with a score of 76.7 among the markets most likely to experience a price drop, followed by North Port, Florida (75), Las Vegas (74.2) , Sacramento, CA (73.1), Bakersfield, CA (72.2), Phoenix, Arizona (72), Tampa, Florida (70.7), and Tucson, Arizona (70.1)

Redfin determined the most “at-risk” markets through an analysis of 98 metropolitan areas in the United States for which enough data was available. Key data points included house price volatility, average debt-to-income ratio and house price growth, the company said in a blog post.

“Demand driven by movers and second home seekers is receding in an economic downturn, a trend that has already begun,” 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.”

Riverside, California
Riverside, California was a popular destination for movers during the COVID-19 pandemic.
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Redfin noted that nine of the 10 cities on the list had house price growth above the national median year-over-year through May.

Despite the likelihood of a slowdown, Bokhari said the housing market was “unlikely” to collapse as it did in 2008.

“The factors affecting the economy are different: most homeowners have good home equity and little debt and unemployment is low,” he said.

At the other end of the spectrum, the city of Akron, Ohio ranked the least likely to experience a housing downturn during a recession with a score of just 29.6. Two New York cities — Buffalo and Rochester — also landed near the bottom of the list.

Tampa, Florida
Tampa and a few other Florida cities were on the list.
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Concerns about a major housing market slowdown are growing as the Fed’s policy tightening contributes to a spike in mortgage rates. The Fed raised its key rate an additional three-quarters of a percentage point on Wednesday.

As The Post reported earlier this week, economist Ian Shepherdson of Pantheon Macroeconomics predicts that house prices will fall “substantially” due to the “cratering” of buyer demand.

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