For much of the U.S., the housing market crash and Great Recession are a recent reminder of the worst-case scenario when lending and homeownership are approached cavalierly. But these events have also become a piece…
For much of the U.S., the housing market crash and Great Recession are a recent reminder of the worst-case scenario when lending and homeownership are approached cavalierly. But these events have also become a piece of history, as home prices and homebuying rates have largely climbed above pre-recession levels.
But in some parts of the country, residents are still waiting for that bounce back from the recession — and it may never come in the way people hope. The number of homeowners currently underwater — owing more on their mortgage than the property’s value — is low nationally at 5.1 million properties, or 9.3 percent of mortgaged properties in the U.S., as of the second quarter of 2018, according to real estate information company ATTOM Data Solutions.
Concentrated portions of the U.S. carry the bulk of that load, however, with some metro areas seeing more than 1 in 5 homes underwater and more than half of properties underwater in specific ZIP codes, per ATTOM information.
ATTOM Data Solutions examined 97 metro areas throughout the U.S. in its recent report on seriously underwater properties in which the homeowner owes at least 125 percent of the home’s value. While it’s hard to pinpoint a normal share of the market that’s underwater, Daren Blomquist, senior vice president of communications for ATTOM, says a fairly healthy market should have “around 5 percent or even less of homes that are seriously underwater.”
The following four metro areas stood out with high rates of seriously underwater properties:
The only metro area with a higher share of seriously underwater properties is Baton Rouge, Louisiana, at 20.8 percent, where the housing market is still suffering from the effects of historic flooding in August 2016. The natural disaster is more the cause of housing market woes than any economic factors, Blomquist says.
But for Memphis, Youngstown, Scranton and Toledo, Blomquist explains they fall “into the category of cities that were struggling before the recession in some ways and are continuing to struggle.” In the U.S. Department of Housing and Urban Development’s comprehensive market analysis for the Youngstown metro area, nonfarm payrolls were not only still below pre-recession levels at the time the report was published in 2016, but they were also as much as 12 percent below the historic peak, which occurred in 2000.
How Did We Get Here?
Unemployment rates for Memphis, Youngstown and Scranton, in particular, linger primarily above the national average going as far back as 2003, according to the U.S. Bureau of Labor Statistics, including during the recession when national unemployment rates reached above 9 percent during the recession.
Without an increase in available jobs, fewer homebuyers are on the market and many others could leave the area, leading to relatively stagnant home value growth. On top of that, when homeowners face loss of income due to layoffs or little to no increase in income for several years, paying off their mortgage becomes harder.
It’s not just a matter of some markets lagging behind others. Many parts of the Rust Belt and rural U.S. continue to have floundering housing markets, while larger, more populous metro areas benefit from continued population growth. In a recent study by real estate information site Trulia, non-metro areas saw a decrease in population of about 1 percent between 2012 and 2017, while home value appreciation for the same areas increased 27.9 percent over the same period. Compare that to a metro area like Phoenix, which saw its population grow by 9.6 percent and home values appreciate by 75.3 percent during the same time frame.
“The reason people are leaving the rural areas is because the jobs have been created in the metro areas,” says Felipe Chacón, housing economist for Trulia.
Rural parts of the U.S. have traditionally based their economies around agriculture and manufacturing, two industries that have been disrupted significantly through automation. “Farms [and factories] can increasingly be managed by fewer and fewer people,” Chacón says.
Automation isn’t a post-recession anomaly, and both smaller metros tied to more agricultural and manufacturing industries and the non-metro rural areas themselves have been feeling the economic pain for longer than that. As job opportunities decrease in the rural sectors, employment continues to rise in tech and other industries that thrive in urban and suburban settings.
“Those are areas where they were struggling before the recession, and when the recession hit … because of the situation they were already in, it’s been tougher to bounce back,” Blomquist says.
When Will Recovery Happen?
The fact that home values in non-metro markets have been able to recover, if in a small way compared to major metro areas, is a sign that rural markets aren’t dead or dying — they’re just adjusting to a new reality. In a comprehensive market analysis published in 2016, HUD notes economic and housing market growth has occurred in the Memphis market, even if that growth hasn’t reached the level of the rest of Tennessee.
Chacón doesn’t expect the population or job market in rural areas to necessarily return to previous high points but instead stabilize as smaller markets than they once were. The areas that manage to maintain employment diversity with county or local government jobs, rural health care and teaching, among others, will “keep population better than other areas and will be able to sort of sustain themselves,” he says.
In HUD’s market analysis for the Toledo metro area, for example, which was published in 2014, farming and manufacturing jobs were still at a net loss since 2000, though education, health care, hospitality, leisure and other services managed to increase in employment opportunities over the same time period.
This could also be the case for the metro areas with high rates of underwater properties, like Scranton or Youngstown, which may need to restabilize as a different, smaller market. Though, that doesn’t necessarily mean it’ll be easy for homeowners currently underwater to gain equity back in their homes as demand for properties continues to decline.
To be able to make a comeback in terms of home values, Blomquist says markets and ZIP codes with long-standing high levels of seriously underwater properties can’t expect a quick return to better economic times. An exception could occur with a sudden change or major employer entering the city, like Amazon HQ2, though none of the cities on ATTOM’s list made it to Amazon’s short list.
It’s impossible to tell which metro areas or towns will see a renaissance through major employer relocations and subsequent population growth and which will continue to shrink until it reaches an even point.
“An influx of jobs could change things more quickly, but for now most of these cities are on the long path for recovery — slowly,” Blomquist says.