Morningstar: Uncovering the Top 15 Housing Markets with the Highest and Lowest Levels of Correction Risk

**15 Housing Markets at Highest Risk of Correction**

Morningstar, a leading investment research firm, has identified the 15 housing markets in the United States that have the highest level of risk for a price correction. These markets include San Diego, Austin, Texas, Colorado Springs, Colo., Provo, Utah, Nashville, Oxnard, Calif., Seattle, Ogden, Utah, Denver, Portland, Ore., San Jose, Calif., Honolulu, Los Angeles, San Francisco, and Salt Lake City. According to Morningstar’s risk scoring tool, Salt Lake City is the most at-risk metro for a home price correction. Factors contributing to Salt Lake City’s risk score include its lack of affordability, high for-sale inventory, and lengthy average days on the market.

**Deteriorating Housing Affordability**

While the limited supply of homes for sale has been a positive factor for U.S. home prices, housing affordability has worsened due to a spike in mortgage rates. After a significant surge of over 40% in national house prices during the Pandemic Housing Boom, mortgage rates jumped from 3% to over 6%. The resulting decrease in affordability is expected to act as a headwind for prices. Morningstar’s latest report suggests that the national housing market is currently undergoing a modest price correction, with prices projected to decline between 4% to 6% from their peak by 2024. This correction would be much milder than the 27% decline observed during the 2007-2012 housing crash.

**Factors Influencing Price Resiliency**

Morningstar researchers emphasize that several factors are currently supporting continued price resiliency. These factors include the rate lock-in effect, conservative lending standards over the past decade that reduce foreclosure risk, and an undersupply of housing stock in the U.S., estimated to be approximately 2.5 million units. However, researchers also highlight that buyer enthusiasm during the pandemic, fueled by extremely low borrowing costs, has pushed home prices to unsustainable levels in certain markets.

**Forecasting the Home Price Correction**

Morningstar’s forecast for the home price correction is contingent on regaining momentum in the second half of the year, which is typically a slower period for the housing market. However, the firm acknowledges that some regional markets may evade price declines altogether. To determine the level of risk for each regional market, Morningstar created a risk scoring tool using data from the Atlanta Federal Reserve, U.S. Census Bureau, and Zillow. Metros with poor affordability, negative population growth, rising inventory, and longer average days on the market were considered to be at the highest risk for a price correction.

**15 Housing Markets at Lowest Risk of Correction**

Alongside the 15 high-risk markets, Morningstar also identified the 15 housing markets with the lowest level of risk. These markets are primarily located in the northeastern and midwestern regions of the country. The low-risk markets include Hartford, Conn., Syracuse, N.Y., Allentown, Pa., New Haven, Conn., Harrisburg, Pa., Rochester, N.Y., Augusta, Ga., Toledo, Ohio, Little Rock, Ark., Wichita, Kan., Baton Rouge, La., Akron, Ohio, Cleveland, Ohio, Scranton, Pa., and Virginia Beach, Va. Hartford, Connecticut, is considered the least at risk for a price correction, with modest population growth, affordable median household income, declining inventory, and stable average days on the market.

**Regional Variations in the Housing Correction**

While the national housing correction has remained relatively tame, some overheated Western housing markets have experienced steeper price declines. Locations such as Austin and Boise have already seen approximately 10% decreases in prices. These Western markets were particularly vulnerable due to the previous decade’s tech boom and a shortage of housing supply, leading to prices stretching beyond fundamental measures like price-to-rent ratios. However, relatively more affordable markets have demonstrated greater resilience than anticipated.

**Future Outlook and Lower Risk Markets**

Morningstar predicts that relatively affordable markets in the Northeast and Midwest will continue to have lower risk for a price correction. The majority of the 15 markets identified as low-risk are situated in the eastern half of the country. These markets, including Hartford, Connecticut, Syracuse, New York, and Augusta, Georgia, demonstrate positive indicators such as modest population growth, affordability, declining inventory, and stable average days on the market.

**Stay Informed about the Housing Market**

For the latest updates on the housing market, follow Morningstar researcher Lambert on Twitter at @NewsLambert.