Written by David Dodge 

The housing market has seen years of growth, but now, concerns about a potential correction are gaining traction. With rising interest rates, economic uncertainties, and affordability challenges, certain areas in the U.S. are more vulnerable to market shifts than others. Homeowners, investors, and potential buyers need to stay informed about which states could face a downturn. So, where should you be paying close attention?

According to recent data, California, Illinois, and key regions in Florida and the New York City metropolitan area are at the highest risk of a housing market correction. Let’s break down the reasons behind this vulnerability and what it could mean for you.

Understanding Market Downturn Risks

Before jumping to conclusions, it’s essential to define what a housing market correction entails. A downturn doesn’t necessarily mean an overnight price crash but rather a shift driven by various economic factors. Here are some key warning signs:

• Housing Affordability Struggles: When home prices rise faster than income levels, fewer buyers can enter the market, leading to stagnation or price declines.

• Underwater Mortgages: Homeowners who owe more on their mortgage than their property’s current value could face foreclosure risks.

• Foreclosure Increases: A growing number of foreclosures signals financial distress among homeowners, adding excess supply to the market and driving prices down.

• Rising Unemployment: Job losses affect housing demand, making it harder for people to keep up with mortgage payments.

Recent data from ATTOM, a real estate analytics firm, highlights which states are currently showing the highest risk factors. Let’s take a closer look at these states and their housing market concerns.

California: The Real Estate Boom Fading?

California has long been known for its skyrocketing home prices. However, many of its housing markets are now showing signs of stress.

A significant portion of the highest-risk counties in the nation are in California—14 out of the top 50. The problem isn’t isolated to one region; it spans across the state, including:

• Inland Markets: Places like Butte, El Dorado, Shasta, and several Central Valley counties (Fresno, Kern, Madera, San Joaquin, and Stanislaus) are raising red flags. These areas saw rapid price growth in recent years but lack the economic stability to sustain those increases.

• Southern California Pressure: Riverside and San Bernardino counties, often considered more affordable alternatives to coastal areas, are now struggling with affordability challenges.

According to Marco Santarelli from Norada blog, California’s markets face a combination of high unaffordability, rising foreclosure rates, and above-average unemployment—factors that could push the state into a housing market correction.

Illinois: Chicago and Its Suburbs Under Strain

Illinois, particularly the Chicago metro area, is also flashing warning signs. Five counties—Cook, Kane, Kendall, McHenry, and Will—are at elevated risk.

The challenges in Illinois stem from:

• Population Decline: Fewer residents mean reduced housing demand.

• High Property Taxes: Illinois has some of the highest property taxes in the country, making homeownership less attractive.

• Economic Concerns: The state's financial instability contributes to uncertainty in the housing market.

While Chicago remains a major economic hub, the surrounding suburban areas that once offered more affordable options are now facing similar struggles, making the region more vulnerable to a downturn.

Florida & NYC Metro: Different Coasts, Similar Issues

While Florida and New York City may seem worlds apart, both have regions identified as high-risk housing markets.

Florida’s Market Risks

Florida saw a surge in housing demand due to relocations from other states, but certain counties are now at risk of correction. Seven counties—including Charlotte, Hernando, Lake, Marion, Pasco, Polk, and St. Lucie—are facing challenges due to:

• Overbuilding: New construction has outpaced demand in some areas.

• Underwater Mortgages: More homeowners are finding themselves owing more than their homes are worth.

• Rising Insurance Costs: Florida’s vulnerability to natural disasters has led to skyrocketing property insurance rates, making homeownership more expensive.

New York City’s Housing Affordability Crisis

The NYC metro area, including Brooklyn, Staten Island, and parts of New Jersey, remains one of the most expensive housing markets in the country. However, extreme unaffordability poses a serious risk. In Brooklyn, for example, homeownership costs exceed 100% of average wages—a level that is simply unsustainable. Even small economic shifts could push this market into correction territory.

Where is the Housing Market More Stable?

While some states face heightened risks, others remain relatively stable. The Midwest and parts of the South, including Wisconsin, Virginia, Tennessee, and Pennsylvania, are showing resilience. These states have:

• More balanced home prices and wages

• Lower foreclosure rates

• Stronger employment conditions

For example, Wisconsin has eight counties ranked among the least at-risk markets, demonstrating that areas with moderate price growth and steady economies are less vulnerable to downturns.

What This Means for Buyers and Sellers

• If You’re Buying: Be patient and do your research. High-risk areas could offer better deals in the near future as markets adjust.

• If You’re Selling: Price your home competitively. Overpriced listings in vulnerable markets may struggle to attract buyers.

• If You’re a Homeowner: Stay informed about your market. If you have an adjustable-rate mortgage, consider refinancing before rates climb further.

Final Thoughts

While the housing market isn’t on the brink of collapse, warning signs in certain states suggest a shift is coming. California, Illinois, Florida, and parts of the NYC metro area face economic and affordability challenges that could lead to market corrections.

For buyers, this could mean upcoming opportunities in cooling markets. Sellers should price strategically to stay competitive, while homeowners must stay vigilant about market trends and financial planning.

Real estate is always evolving—staying informed and making data-driven decisions will be key to navigating whatever comes next.