The odds of a home price decline hitting your local housing market, as told by one interactive chart

April 27, 2022, 9:15 AM UTC

Fed Chair Jerome Powell has made it clear: The central bank is done sitting on the sidelines as inflation chips away at the value of the dollar. The plan? Put upward pressure on interest rates until price growth relents.

Historically speaking, that inflation fighting playbook is particularly hard-felt in the housing market, where spiking mortgage rates can quickly price out homebuyers. That’s already starting to happen. On Thursday, the average 30-year fixed mortgage rate hit 5.11%—up from 3.11% in December. A borrower who took out a $500,000 mortgage at a 3.11% rate would owe $2,138 per month. At a 5.11% rate, that monthly payment on a 30-year mortgage spikes to $2,718.

While the swift move up in mortgage rates is undoubtedly putting downward pressure on the housing market, it doesn’t mean home prices are about to crash. In fact, every major real estate firm with a publicly released forecast model, including Fannie Mae and Zillow, still predicts home prices will climb further this year.

That said, industry insiders tell Fortune there’s increasingly a chance that the economic shock caused by soaring mortgage rates could see home values fall in some overpriced housing markets.

To better understand which regional housing markets might see a price decline, Fortune reached out to CoreLogic. The California-based real estate research company provided us with its assessment of close to 400 metropolitan statistical areas.

CoreLogic, which ranks No. 952 on the Fortune 1000, put housing markets into one of five categories based on the likelihood that home prices in that particular market are to fall over the coming 12 months. Here are those groupings:

  • Elevated: Over 40% chance of a price dip
  • High: 30–40% chance
  • Medium: 20–30% chance
  • Low: 10–20% chance
  • Very Low: 0–10% chance

Among the 392 regional housing markets that CoreLogic measured, it puts 86% into the "very low" or "low" likelihood of a price decline. It put 10% of markets into the "medium" grouping and 1% in the "high" grouping. Meanwhile, CoreLogic places only 2% of markets into the "elevated" group. The markets in the elevated grouping—the highest odds of a price correction—include Hartford; Kalamazoo; Lewiston, Maine; Mount Vernon, Wash.; Muskegon, Mich.; Olympia, Wash.; Salem, Ore.; and Honolulu.

Even in the face of soaring mortgage rates, CoreLogic still thinks the chances of prices declining in 2022 are fairly low. Why? The real estate research firm points to the mismatch between inventory and strong buyer demand. That's also reflected in its national forecast. Over the coming 12 months, CoreLogic predicts U.S. home prices are poised to rise 5%. That'd mark a deceleration from the 19.8% jump posted over the past 12 months, but it's hardly the relief priced-out buyers are seeking.

However, that doesn't mean CoreLogic views the ongoing housing market boom as healthy.

CoreLogic also calculated whether local income levels could support local home prices. The finding? CoreLogic says 65% of U.S. regional housing markets are "overvalued." That includes every major market in states like Arizona, Florida, and Texas. Just 9% of regional housing markets are what CoreLogic deems "undervalued"; 26% get its "normal" label.

Not long after the strict COVID-19 lockdowns let up in 2020, the housing market began to boom. Economists at the time weren't worried. In their eyes, the demographic wave of first-time millennial homebuyers, the influx of work-from-home buyers, and low mortgage rates all supported the price boom. In recent months, however, their tune has shifted. Just last month, researchers at the Federal Reserve Bank of Dallas published a paper warning that a housing bubble could be brewing. Meanwhile, last week housing economist George Ratiu proclaimed that “we’re not in a housing bubble just yet—but we’re skating close to one if prices continue rising at the current pace." 

Increasingly, industry insiders are rooting for spiking mortgage rates to rein in the unsustainable levels of home price growth. That includes Logan Mohtashami, lead analyst at HousingWire. He'd like to see soaring mortgage rates cause some homebuyers to pause their search. If that happens, inventory could finally get the breathing room it needs to rise again.

"It's too many people chasing too few homes; we desperately need a breather," Mohtashami says.

If you’re hungry for more housing data, follow me on Twitter at @NewsLambert.

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