Riverside, Phoenix, Miami: Housing Markets Most at Risk in the Next Recession

Highlights from this report:

  • A report ranked Riverside, Phoenix and Miami as the most at-risk housing markets.
  • These markets could experience a downturn during the next recession.
  • On the flip side, Rochester, Buffalo and Hartford (Conn.) had the lowest risk.

Miami at Night
Miami skyline at night | Photo by Holger Detje (Pixabay)

Earlier this month, the national real estate brokerage Redfin published a ranking of the most fragile housing markets in the country. Specifically, they assigned an overall risk score to show which markets are most likely to see a decline in home prices during the next recession.

(Note: We’re not suggesting an economic recession is imminent. But they are a regular occurrence. It’s not a question of if the U.S. will experience another one, but when.)

According to the real estate research team at Redin, the housing markets most at risk of a downturn in the next recession are:

  1. Riverside, California
  2. Phoenix, Arizona
  3. Miami, Florida

Las Vegas also had a fairly high risk score, among the 50 or so metro areas analyzed in this study. (See the “Sand States” segment below, to understand why that’s noteworthy.)

Riverside, Phoenix, Miami Housing Markets at Highest Risk

To quote that September 2019 report:

“Regardless of when [the next recession] comes, it’s unlikely to have a large negative impact on the real estate market. However, there are some metro areas that are more at risk of a housing downturn than others. Riverside, Phoenix and Miami have the highest risk of a housing downturn in the next recession…”

To measure risk, the company’s research team analyzed seven housing and economic factors for 50 of the nation’s largest metro areas. They compared home prices to incomes, researched local employment conditions, and considered the frequency of property “flipping” — among other things.

They then assigned an overall risk score to each metro area. Local housing markets with higher scores are (in theory) at a higher risk of home-price declines when the next recession comes along.

Among the 50 metro areas studied, Riverside, California had the highest overall risk score. Phoenix and Miami came in at #2 and #3, respectively. Las Vegas, Nevada was the 7th “riskiest” real estate market among the 50 that were studied.

Déjà Vu: The ‘Sand States’ All Over Again?

Those who have followed U.S. housing market trends over the past decade might be experiencing a sense of déjà vu at this point. Arizona, California, Florida and Nevada are the so-called “Sand States” that crashed hardest during the housing collapse of 2008 (and the subsequent recession).

The following quote comes from an FDIC article published in 2009, when the nation’s housing market was experiencing its last major downturn:

“The historic boom and subsequent decline in the nation’s housing market has been a defining feature of the current recession. The housing downturn has been most acute in four states — Arizona, California, Florida, and Nevada — that had experienced some of the highest rates of home price appreciation in the first half of the decade. While these states are not all contiguously located, their similar housing cycles and abundance of either beaches or deserts have led some analysts to label them ‘Sand States.'”

This article went on to discuss the “market imbalances” that led to a sharp drop in home prices in those states, and especially in cities like … wait for it … Phoenix, Las Vegas, Miami and Riverside.

So we have a ten-year-old FDIC report that explains the conditions that led to a huge crash in these housing markets. And we also have a recent (and in-depth) analysis that gives those same metro areas a relatively high “risk score” for home-price declines in the next recession. Food for thought.

Riverside, California

According to the report’s authors, the real estate market in Riverside, California has more home price volatility than most other cities across the country. It also has a comparatively high loan-to-value ratio among homeowners (another risk factor).

Home prices in Riverside have risen steadily over the past few years. This is partly due to an influx of new residents, many of whom have relocated from California’s more expensive coastal real estate markets (e.g., San Diego, San Francisco and Los Angeles).

As of September 2019, however, home-price growth in Riverside had slowed down considerably.

The chart below shows Zillow’s proprietary “Home Value Index” for Riverside, California going back nearly a decade. It is based on their assessment of the median home price for this housing market, “median” being the midpoint.

Riverside price chart
Chart: Home prices in Riverside, California. | Source: Zillow.com.

As you can see from this chart, home prices in the Southern California city (and broader metro area) have risen sharply over the past few years. What you can’t see in this chart is how prices fell sharply from 2008 to 2010. You’ll also notice a slowdown in price growth toward the right side of the chart, along with Zillow’s modest forecast in the green shaded area.

To be clear, a slowdown in home-price growth does not mean that a housing market crash is near. Riverside could actually benefit from a cooling trend at this point, since it could help prevent a crash from occurring. The key takeaway from this chart is that home-value appreciation in Riverside has slowed considerably over the past two or three years.

Phoenix, Arizona

Phoenix was one of those real estate markets that suffered heavily during the last housing crash and subsequent recession. Home prices in that metro area plummeted, leaving many people upside down in their mortgage loans. Foreclosures skyrocketed, and some homeowners simply walked away from their homes (and mortgage obligations).

But this real estate market has regained much of what it lost, in terms of home prices. And we’re not seeing much of a slowdown in the Phoenix real estate market, like we are in many other U.S. cities. Quite the opposite, in fact. Tight supply conditions and steady demand are boosting home values in this metro area.

A September 2019 report from S&P Dow Jones Indices stated:

“Phoenix, Las Vegas and Tampa reported the highest year-over-year gains among the 20 cities. In June, Phoenix led the way with a 5.8% year-over-year price increase, followed by Las Vegas with a 5.5% increase…”

Miami, Florida

Back in May, we reported that Miami was one of several housing markets that might be nearing their peaks in terms of home prices. But house values are still rising in the South Florida city, as of September 2019.

Even so, the size of those gains has declined significantly. A few years ago, home prices within the Miami real estate market were rising by double digits year over year. Today, the annual gains are more moderate by comparison (and that’s probably a good thing).

In September, the housing research team at Zillow wrote: “Miami home values have gone up 0.9% over the past year and Zillow predicts they will fall -0.4% within the next year.” This particular forecast extends into early fall 2020.

Chart: Home prices in Miami, Florida. | Source: Zillow.com.

The biggest change in Miami’s real estate market has to do with inventory. Among the nation’s metro areas, Miami had one of the highest levels of supply (homes for sale) as of summer 2019. Homes are also taking longer to sell in this housing market, when compared to most other major cities across the U.S.

Miami is clearly moving toward being a buyer’s market, and that’s a trend we expect to carry over into 2020 as well.

Among the 50 metropolitan areas analyzed in the Redin study, the Miami real estate market had the third highest risk of a downturn in the next recession.

Disclaimer: This article contains forecasts, outlooks and assessments from third-party sources not associated with the Home Buying Institute. Housing-related predictions are the equivalent of an educated guess and should be treated as such.