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Housing markets labeled ‘high’ risk of a home price drop just spiked 73%—find your local market using this interactive map

June 23, 2022, 10:16 AM UTC

The U.S. housing market is slowing—fast. A combination of record appreciation in home prices—which jumped 37% over the past two years—and spiking mortgage rates—up from 3.2% to 5.88% over the past six months—has brought the pandemic housing boom to an end. We’re staring down the sharpest decline in housing “activity” since 2006.

While it’s fair to call this shift a housing correction, it’s far too early to call this a housing bust or housing crash. Right now, we’re watching the U.S. housing market try to find an equilibrium amid spiking mortgage rates. If things do get messy, the Federal Reserve could always step in and once again put downward pressure on mortgage rates.

That said, the cooling housing market has seen the odds of a home price decline jump. At least on a regional level.

Between April 2022 and April 2023, CoreLogic predicts U.S. home prices are poised to rise another 5.9%. But not every housing market will be so lucky. Fortune reached out to CoreLogic to see if it would provide us its assessment of the nation’s largest regional housing markets. Among the 392 regional housing markets it looked at, CoreLogic found 45 markets had a greater than 50% chance of seeing local home prices decline over the next 12 months. Last month, only 26 markets fell into that camp. That’s a 73% one-month jump.

To determine the likelihood of regional home prices dropping, CoreLogic assessed factors like income growth projections, unemployment forecasts, consumer confidence, debt-to-income ratios, affordability, mortgage rates, and inventory levels. Then CoreLogic put regional housing markets into one of five categories, grouped by the likelihood that home prices in that particular market will fall over the coming 12 months. Here are the groupings the real estate research firm used for the June analysis:

  • Very high: Over 70% chance of a price dip
  • High: 50–70% chance
  • Medium: 40–50% chance
  • Low: 20–40% chance
  • Very Low: 0–20% chance

Among the 392 regional housing markets that CoreLogic measured, 159 markets were in the "very low" risk grouping. Another 152 housing markets landed in the "low" group, 36 markets qualified for the "medium" group, and 41 markets were in the "high" group. CoreLogic categorized only four markets as having a "very high" likelihood of a price drop: Bellingham, Wash.; Bend, Ore.; Bremerton, Wash.; and Lake Havasu City, Ariz.

"The probability of a price decline has intensified in recent months as mortgage rates continue to surge and consumer confidence is shattered by high inflation and fears of recession. The number of markets with more than 50% probability of price decline has [nearly] doubled," Selma Hepp, deputy chief economist at CoreLogic, tells Fortune.

While the odds of home price drops remain low, this marks the third consecutive month that the odds of a regional price decrease have risen. That trend is likely to continue. One reason: The June analysis uses April housing data. Of course, April was a significantly stronger housing market than the one we saw in May. Look no further than Provo, where 47.8% of home sellers cut their list price in May. When CoreLogic runs the analysis next month, it very well could see another big jump in the number of markets at risk of a price correction.

Historically speaking, the pandemic housing boom has pushed the U.S. housing market to its affordability limits. Two separate analyses, one conducted by Moody's Analytics and the other by economists at Florida Atlantic University, find that the vast majority of U.S. regional housing markets are now "overvalued."

CoreLogic agrees.

According to data provided to Fortune, CoreLogic deems that 70.7% of the nation's 392 largest regional housing markets were "overvalued" in April. In March, 67.9% of markets got the "overvalued' label; in February it was 64.7% of markets.

Why does that matter? Simply being "overvalued" doesn't guarantee a price correction; however, it's troublesome if home prices become too detached from underlying economic fundamentals. Home price growth can't outrun income growth forever. Not to mention, "overvaluation" is one of two key elements required in a housing bubble, the other being speculation.

The housing market is changing fast. To stay updated, follow me on Twitter at @NewsLambert.

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