Top 5 of the Worst Real Estate Markets in the US
Last year, Smart Asset released its list of the worst housing markets for growth and stability. Leading the pack was Flint, Michigan, where an excess of inventory has resulted in a persistent risk of home price declines.
Smart Asset analyzed housing value data from 400 metropolitan regions across the United States, examining data from each quarter between the first quarter of 1997 and the fourth quarter of 2021.
From this analysis, not a single market exhibited a positive price appreciation forecast. With sluggish sales and falling prices, aggressive investors might find some excellent deals in these markets. However, research, patience, and a keen sense of value are essential to secure a lucrative real estate investment.
The Five Worst Housing Markets in the US
Three out of the five worst housing markets in terms of growth and stability are located in Michigan. These include Flint, Monroe, and Detroit-Dearborn-Livonia. Over the past 25 years, the house price index in these areas has averaged an annual growth of 2.62% or less.
1. Flint, MI
Flint ranks as the worst housing market of 2022 for growth and stability, much like the previous year. Historical data indicates a 45% chance that a home price would drop more than 5% in value within 10 years of purchase, the second-highest rate for this metric. Additionally, over the past 25 years, the average home price has increased by less than 83%, placing it 25th from the bottom in the study.
2. Monroe, MI
Located about 40 miles south of Detroit, the Monroe metro area is the second-worst housing market for growth and stability. Home buyers face a 44% chance of significant price declines, and from 1997 through 2021, the average home price index increased by only 83.77%, an annualized rate of return of less than 3%.
3. East Stroudsburg, PA
Part of the Poconos, East Stroudsburg’s housing market ranks worst for stability and 62nd-worst for growth. Homeowners here face a 46% probability of a significant price decline, with the overall home price index increasing by less than 103% over the past 25 years.
4. Detroit-Dearborn-Livonia, MI
In Detroit-Dearborn-Livonia, the average home price has risen by only 2.62% annually over the past 25 years. This is significantly lower than the annualized increase for the top housing market in the study (Austin-Round Rock-Georgetown, Texas, at 6.37%). Additionally, Detroit-Dearborn-Livonia ties with Monroe for the third-worst housing market stability score.
5. Rockford, IL
In northern Illinois, Rockford ranks as the fifth-worst housing market for growth and stability among the 400 metro areas considered. A home bought in the Rockford metro area between 1997 and 2021 had a 39% chance of losing at least 5% of its value within 10 years of purchase. Meanwhile, home prices rose just 67.25% in that time span, ranking 398th out of 400 metro areas.
The complete list of the worst housing markets in 2022 is depicted in the following infographic.
Methodology for Identifying the Worst Housing Markets
Smart Asset determined the best and worst housing markets for growth and stability by examining data from 400 metro regions. They compared these regions using two primary metrics:
1. Stability
This metric measures the probability that homeowners experienced a significant price decline (5% or more) at any point within the 10 years after purchasing a home.
2. Overall Home Price Growth
This metric assesses the total growth in home prices during the analyzed period.
All data comes from the Federal Housing Administration (FHA) and covers 25 years from the first quarter of 1997 through the fourth quarter of 2021. Using these two metrics, Smart Asset created their final rankings. Metro areas received a score of 100 on the stability metric if there was a 0% chance of a significant price decline.
The area with the highest probability of a significant price decline (46%) received a score of 0. Similarly, the metro area with the highest overall home price growth received a growth index score of 100, while the area with the lowest growth received a score of 0. They averaged each metro area’s scores across the two metrics, ranging from the highest average score to the lowest.
The Pandemic’s Impact on Real Estate Markets
In June of last year, Bankrate released a report detailing which real estate markets were performing the worst during the pandemic-led housing boom. Despite a nationwide surge in property values over the 12 months ending in September, some state economies struggled with weak job growth and other challenges.
Bottom Five Housing Markets During the Pandemic Boom
- Connecticut: This state posted poor results across the board.
- Washington, D.C.: The district’s score was brought down by weak appreciation, high unemployment, and a hefty tax burden.
- Alaska: Tepid job growth and high unemployment weighed down this northernmost state.
- Maryland: The state showed comparatively weak appreciation of 11%, along with a high level of past-due loans and a struggling job market.
- Louisiana: Ranking worst in past-due loans with 6.8% of homeowners behind on mortgage payments, Louisiana also performed poorly on price appreciation, job growth, and tax burden.
Housing Markets at Risk of Price Decline
According to data released by the Federal Housing Finance Agency (FHFA), home prices are now 34% higher than they were two years ago, with a continued rise from March to April. Despite this, home prices have increased more in some areas than others, raising concerns about a potential housing market crash.
Top Markets Expected to See Price Declines
- Boise, ID
- Colorado Springs, CO
- Las Vegas, NV
Prices in these markets have increased by 30% in the last year. Mark Zandi, chief economist at Moody’s Analytics, suggests that “the most overvalued markets are in the South and Southwest,” particularly in areas where home prices were inflated by remote work during the COVID pandemic. These regions include parts of the Carolinas, Atlanta, Florida, Texas, and the Mountain West.
Impact of Migration on Housing Prices
Thomas LaSalvia, a senior economist at Moody’s Analytics, notes worsening conditions in many Sun Belt cities that have seen significant migration in recent years. Many out-of-state migrants brought large savings from selling homes in higher-priced areas or substantial remote work incomes, driving local buyers out of the market in bidding wars.
Cities with the Most Overvalued Homes
- Boise City, ID
- Colorado Springs, CO
- Las Vegas, NV
- Phoenix, AZ
- Coeur d’Alene, ID
- Tampa, FL
- Atlanta, GA
- Fort Collins, CO
- Sherman, TX
- Jacksonville, FL
- Idaho Falls, ID
- Lakeland, FL
- Greeley, CO
- Longview, WA
- Charleston, SC
- Albany, OR
- Denver, CO
- Clarksville, TN
- Greensboro, NC
- Charlotte, NC
Take Away
While the real estate market continues to evolve, certain regions face significant challenges in growth and stability. Michigan, in particular, stands out with three of its cities ranking among the worst markets. However, understanding these trends and conducting thorough research can provide savvy investors with opportunities to secure valuable investments even in these challenging markets.
The pandemic has further complicated the landscape, with some areas experiencing unprecedented growth and others struggling due to various economic factors. Keeping a close eye on market trends and being aware of overvalued regions can help mitigate risks and identify potential areas for investment.