As rising mortgage rates continue to put pressure on the U.S. housing market and the broader economy, economists and housing researchers are seeing early signs of a market slowdown, but one question remains. .
Is a generalized correction occurring after more than two years of extraordinary acceleration in house prices? And if so, what would that fix look like?
The answer to this question likely hinges on regional real estate markets, with some areas more at risk of falling prices – and not just slowing price growth – than others.
That’s according to recent analysis by Fortune, which used data from real estate research firm CoreLogic to release an interactive chart showing the levels of “risk” regional housing markets face should prices decline.
Fortune’s analysis shows parts of the West range from “very low” risk of lower regional home prices over the coming year to some “very high risk” areas.
Let’s dive into it.
What is Utah’s risk level?
The five Utah housing markets included in the Fortune/CoreLogic analysis are rated as having a “very low” risk of falling house prices: Logan, Ogden-Clearfield, Salt Lake City, Provo-Orem and St. George at the southern end of the state.
The analysis aligns with what local experts said about Utah’s housing market, which was struggling with a housing shortage even before the COVID-19 pandemic sent the national housing market into a frenzy. .
The big picture: Over the past two years, as many Americans have reassessed their lives amid the pandemic, already rising home prices in Utah have risen even further. In the past two years alone, home prices in Salt Lake County have risen 50%, according to the Salt Lake Board of Realtors.
Utah remains one of the fastest growing states in the country. Local Utahns continue to make up the bulk of the state’s growth, but particularly over the past year, immigration has begun to be a larger contributor.
Today, the housing shortage in Utah has only gotten worse. Housing experts say this is creating a “serious” imbalance, which is fueling the state’s housing affordability crisis. As long as demand continues to outstrip supply — and as long as Utah continues to enjoy a strong jobs economy — housing experts say it’s hard to imagine a bursting ‘bubble’ or a downturn. home prices on the Utah skyline.
What does “low risk” mean?
The “very low” rating means that Fortune/CoreLogic analysis places these Utah housing markets in the least risky category of seeing house prices decline over the next 12 months. Specifically, CoreLogic indicates that there is a 0-20% chance that these areas will experience lower prices over the next year.
In order to determine risk levels, CoreLogic “assessed factors such as income growth projections, unemployment forecasts, consumer confidence, debt-to-income ratios, affordability, mortgage rates and levels of inventory,” Fortune reported. Next, CoreLogic “ranked regional real estate markets into one of five categories, grouped by the likelihood that home prices in that particular market will fall over the next 12 months.”
- The “very high” risk classification means that these areas have more than a 70% chance of experiencing a decline in housing prices.
- “High” means there is a 50% to 70% chance that prices will go down.
- “Medium” means 40% to 50% chance.
- “Low” means 20% to 40% chance.
- “Very low” means 0% to 20% chance.
why is it important: Fortune reported that “chances of a house price correction just increased” as CoreLogic’s May analysis found higher odds of markets seeing price declines relative to analysis of April.
- “When CoreLogic analyzed the housing market in April, the company found that the average market had a 13% chance of experiencing a decline in house prices over the next 12 months,” Fortune reported. “Now CoreLogic indicates that the average regional real estate market has a 28% chance of lower prices over the next 12 months. That’s a spike of 15 percentage points in just one month.
Why the big spike? CoreLogic researchers point to “soaring mortgage rates, declining consumer confidence and overvalued home prices,” Fortune reported.
Yes, but: “While CoreLogic sees the odds of a home price correction increasing, it still expects nationwide home prices to edge up in the coming year,” Fortune reported. “Between March 2022 and March 2023, CoreLogic predicts U.S. home prices will rise another 5.9 percent.”
What are the high risk areas?
According to the Fortune/CoreLogic analysis, two regional real estate markets in Arizona have a “very high” probability of falling prices:
- Prescott Valley, Arizona.
- Lake Havasu City-Kingman, Arizona.
Two other markets (one closer to the west coast and one on the east coast) also have a “very high” probability of falling prices:
- Bend, Oregon.
- Bridgeport, Connecticut.
Two other major Western real estate markets – both in a state that tops national lists for its shocking growth in house prices throughout the COVID-19 pandemic – are classified as high risk:
- Boise, Idaho.
- Coeur d’Alene, Idaho.
What’s going on in Idaho? While the Boise market has exploded over the past two years as the premier place to buy larger homes at more affordable prices, national researchers have deemed it one of the top “overvalued” markets in the country. .
However, parts of Idaho and Arizona are not as exposed to price declines, according to Fortune analysis.
Both Idaho Falls and Pocatello are classified as “low risk,” as are the Utah housing markets directly to the south. In Arizona, the Flagstaff, Phoenix and Tucson areas are also “low risk,” according to data from CoreLogic.
Correction: An earlier version incorrectly stated that Utah’s housing supply exceeded demand. Demand continues to exceed supply.