Here’s where coronavirus will impact the housing market the most

The spread of COVID-19 has decimated entire sectors of the American economy, bringing industries like airlines to a halt and rendering almost 10 million Americans unemployed. The housing market is at risk from a number of different angles too, but it’ll be months before we know where and to what extent housing suffers.

In an attempt to see what markets might be most vulnerable to the economic fallout of the novel coronavirus, ATTOM Data Solutions, a real estate data provider, analyzed 483 counties in the United States—those with a population of at least 100,000 and at least 100 home sales in the first fiscal quarter of 2020—and ranked them according to how at risk they are.

ATTOM concludes that much of the East Coast—New Jersey and Florida in particular—has the most counties with housing markets vulnerable to the novel coronavirus, while the West Coast and Midwest have a better chance of a limited impact.

“It’s too early to tell how much effect the coronavirus fallout will have on different housing markets around the country, but the impact is likely to be significant from region to region and county to county,” says Todd Teta, chief product officer with ATTOM Data Solutions. “From [our] analysis, it looks like the Northeast is more at risk than other areas. As we head into the Spring home buying season, the next few months will reveal how severe the impact will be.”

A Zillow study revealed that in previous pandemics in Asia, the volume of home sales dropped dramatically but prices remained relatively steady. An analysis by consultant and academic Mike DelPrete shows a similar scenario playing out in Asian cities that were hit early by COVID-19.

While this general trend will likely hold in the U.S. too, there’s no such thing as a national housing market, and conditions in an individual city can run counter to the rest of the country.

ATTOM took three factors into account for its analysis. The first is the percentage of houses in the county that got a foreclosure notice in the fourth fiscal quarter of 2019. The second is the percentage of houses in the county that are “underwater”—the homeowner owes more on the house than what the house is worth.

Counties that rank high in these factors are more likely to see a pile up of foreclosures than counties that rank low as unemployment rises and shelter-in-place orders extend. With people who’ve gotten a foreclosure notice, the coronavirus may be the event that pushes them into foreclosure. Homeowners who are underwater may decide to just let their house go into foreclosure rather than pay more than it’s worth, a phenomenon that played out en masse after the financial crisis in 2008.

The third factor is the percentage of local wages needed to pay for homeowner expenses. This is a market affordability measure. In areas where affordability is low, homeowners are already vulnerable to any change to their income.

While these factors layout general conditions, there are still a number of other things to consider. Some local jobs markets will be more vulnerable to pay cuts and layoffs depending on how diversified they are. For example, if a county’s economy is heavily dependent on the airline industry—which has practically come to a halt since the pandemic hit—that county’s housing market would be vulnerable to the sudden loss of wages, even if it ranked favorable according to ATTOM’s three factors.

How local governments have responded to the pandemic will also go a long way toward its housing market’s fortunes. If local leaders didn’t take it seriously soon enough, it could be under shelter-in-place orders longer than it otherwise would be, delaying the economic recovery and thus stability to its housing market.

There is also a huge wild card in the housing market that has implications for every city: the mortgage industry. Federal regulators announced in March that it was offering up to a year of mortgage forbearance to those impacted by the economic fallout of COVID-19. That helps homeowners stay in their homes, but mortgage servicers still have to come up with the money to pay mortgage bond investors those mortgages are tied to.

If the federal government doesn’t act fast to solve this problem, the entire mortgage system could collapse and trigger a financial crisis. If that happens, the housing market as a whole could end up in a similar situation to the aftermath of 2008.