As someone who tracks real estate risk indicators closely, I find this latest data from Attom hard to ignore. When nearly half of the nation’s riskiest housing markets are concentrated in just two states, it’s time to take a deeper look – not just at what’s happening, but why it matters to buyers, sellers, and investors alike.

Homeownership Risks in California and New Jersey: What You Need to Know

According to a Q1 2025 report from Attom, California and New Jersey dominate the list of the 50 most at-risk housing markets in the U.S. California claims 14 counties, and New Jersey follows with nine. These markets were identified based on factors like foreclosure rates, housing affordability, and the percentage of mortgages that are seriously underwater—meaning borrowers owe at least 25% more than their home’s market value.

In contrast, the safest zones tend to be in the South and Midwest, with Tennessee counties topping the list of least risky areas. Nationally, only about 3% of homes are underwater, and foreclosures fell 1% month-over-month in May, though they’re up 9% from last year.

My Take: What This Means for the Market

1. Regional Risk Is Creating a Tale of Two Housing Americas

It’s striking how the North (especially coastal states) is facing elevated risk while the South and Midwest appear relatively insulated. This bifurcation reflects not just economic dynamics but also climate vulnerabilities, like wildfires in Northern California. If you’re investing, location strategy has never been more important.

2. Underwater Mortgages Signal Lingering Price Correction

A “seriously underwater” mortgage is a red flag for both individual homeowners and macroeconomic stability. In places like Butte or Cumberland County, high underwater rates suggest that price appreciation during the pandemic wasn’t matched by long-term value—and now the bubble’s leaking, if not yet bursting.

3. Affordability Crisis Is Fueling Long-Term Instability

Attom reports that in 109 counties, buyers would need to spend over 50% of their income to purchase a median-priced home. That’s unsustainable. When affordability deteriorates this sharply, defaults and forced sales eventually follow. Markets like these are often canaries in the coal mine for broader downturns.

4. The Drop in Foreclosures Isn’t the Full Story

Yes, foreclosure filings dipped 1% from April to May. But the 9% year-over-year increase tells us this is more of a plateau than a recovery. With inflation still sticky and mortgage rates stubbornly high, the risk of a slow-creep crisis in vulnerable counties remains very real.

What Should You Do? My Suggestion Based on This Data

For Buyers:

Don’t skip the research. If you’re eyeing properties in California or New Jersey, vet the county’s foreclosure trends and affordability stats. A dream home in a high-risk zip code might not be worth the long-term uncertainty.

For Investors:

Diversify geographically. Southern and Midwestern markets like Tennessee are showing stronger fundamentals. These regions offer more manageable cost of living and utilities, better long-term stability, and attractive rental yields—without the volatility of coastal metros.

For Homeowners in Risk Zones:

Track your equity. If you’re close to being underwater, consider a refinance or valuation review now. Better to act early than be caught off guard in a downturn—particularly when high taxes and rising utility costs can erode your margins over time.

Micro Q&A:

What makes California and New Jersey the riskiest markets for homeownership?

These states have high concentrations of counties with foreclosures, low affordability, and underwater mortgages. That combo creates greater risk for defaults, equity loss, and stagnant property values.

One More Thought

Markets may be cooling in parts of the country, but not all cooling is healthy. When price stagnation pairs with high debt and low affordability, the risk calculus changes. This isn’t just about market cycles—it’s about resilience in the face of layered financial and environmental pressures.

If you’re unsure where your market stands, data-backed platforms can help track risk trends county by county. Staying informed isn’t optional anymore—it’s essential.

Reader Q&A

Should I delay buying in California or New Jersey?

Not necessarily, but proceed with caution. Look beyond the state-level data—some counties are riskier than others.

Is underwater mortgage risk increasing nationwide?

Not broadly. National rates remain under 3%, but certain counties—especially in coastal states—are trending worse.

Are Midwest markets a better investment now?

In many cases, yes. With better affordability and lower foreclosure rates, they offer more stable returns for long-term investors.