Housing Hardship Index: Hawaii tops list of states most affected by coronavirus

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The coronavirus contagion continues to take a toll on the economy — but the effects vary widely by state and region. In September, the tourism-heavy economies of Hawaii and Nevada suffered the most from COVID-19, according to the Bankrate Housing Hardship Index.

The economies of Louisiana and Mississippi, with high numbers of homeowners struggling to pay their mortgages, moved up the list of hardest-hit states. And unemployment in a handful of struggling states lingered in the double digits in September. Our metric sums mortgage delinquencies and unemployment to show which states are enduring the most extreme slowdowns during the pandemic.

“States experiencing high unemployment will see mortgage delinquencies surge if unemployment remains elevated as forbearance periods expire,” says Greg McBride, CFA, Bankrate chief financial analyst. “This year may see the worst for unemployment, but 2021 will likely bring the worst for mortgage delinquencies and defaults.”

For now, foreclosures are at historically low levels. The Coronavirus Aid, Relief and Security Act requires mortgage giants Fannie Mae and Freddie Mac, the Federal Housing Administration and the Department of Veterans Affairs to let borrowers miss up to a year of payments without penalty. Those mortgage relief initiatives are mandated by federal law, but lenders also have voluntarily extended forbearance to more than a million borrowers with jumbo loans and other types of mortgages not backed by the federal government.

However, housing economists expect a wave of foreclosures next year. Real estate markets are local, as the saying goes, and the Housing Hardship Index indicates which regions may face protracted recoveries, and which areas might emerge comparatively unscathed.

Some states — especially those in the Rockies and upper Great Plains — have weathered the coronavirus storm well

The 5 state housing markets hit hardest by coronavirus

The fallout for real estate and labor markets is severe in some corners of the country. These five states fared the worst in September:

  1. Hawaii. A tourism-dependent state, Hawaii’s economy has recovered in fits and starts  since April. Its 15.1 percent unemployment was the worst in the nation, and a reversal from August’s 12.5 percent. Hawaii’s mortgage delinquency rate fell to 7.9 percent, compared with 8.3 percent in August. Hawaii’s overall Housing Hardship Index for September was 23.
  2. Nevada. As casinos reopened, Nevada’s jobless rate has fallen sharply. After topping 28 percent in April, Nevada unemployment had fallen to 12.6 percent in September. The Silver State’s mortgage delinquency rate fell to 8.3 percent in September, down from 8.6 percent in August and a high of 10 percent in May, according to Black Knight data. Nevada’s overall reading for August was 20.9 — a dramatic improvement from April, when Nevada’s nation-leading Housing Hardship Index topped 36.
  3. Louisiana. This state’s economy suffers from the combination of a high delinquency rate and elevated jobless rates. The delinquency rate was 10.6 percent in September, while unemployment stood at 8.1 percent.
  4. Mississippi. This state had the nation’s highest mortgage delinquency rate in September, at 11.2 percent. Unemployment was 7.1 percent.
  5. Rhode Island. The unemployment rate was 10.5 percent in September, down from 12.8 percent in August, and the mortgage delinquency rate was 7.2 percent, down from 7.5 percent the previous month.

The Housing Hardship Index shows which states’ real estate markets could suffer the most from the coronavirus recession. It’s inspired by the Misery Index, a tried-and-true gauge of prosperity that sums inflation and employment. By that measure, the “stagflation” days of the late 1970s and early 1980s were especially difficult.

Inflation isn’t a factor these days, so the Housing Hardship Index tracks two other statistics: mortgage delinquency rates reported by data firm Black Knight, and jobless numbers released by the U.S. Labor Department.

Nevada was the hardest-hit state on our index in April and May, then was overtaken by New York and New Jersey in June and July. New Jersey showed strong improvement in September, falling to the middle of the pack in Bankrate’s state rankings.

Few foreclosures, so far

Hawaii’s economy has been hit by the one-two punch of a sharp decline in tourism and strict lockdowns imposed by local officials. In the second quarter, Hawaii’s economic activity plunged by 42 percent, tying Nevada for the most dramatic downturn in the nation, says Carl Bonham, executive director of the University of Hawaii Economic Research Organization.

Bonham hoped the Hawaii tourism industry would reopen in July. That didn’t happen. Instead, a local outbreak of COVID-19 cases caused the state economy to grind to a halt again. In another sign of weakness, the number of official jobs in Hawaii dropped 18 percent from September 2019 to September 2020.

“The overall picture is one of a very weak economy,” Bonham says.

The trend has been similar in Nevada. The state is showing improvement but continues to struggle after a near-shutdown of its economy, which is driven by casinos, conventions and concerts — all victims of the coronavirus.

Despite the sudden slowdown, Nevada’s housing market has held up well, says Bob Hamrick, chairman and chief executive of Coldwell Banker Premier Realty in Las Vegas.

“Our entire state is a hospitality state. Our convention business has come to an absolute halt,” Hamrick says. “Against that backdrop, prices have continued to rise.”

Las Vegas has a tight supply of homes for sale, and many homeowners have built equity in their homes during the past decade.

“The perception that there’s going to be a lot of foreclosures is entirely unfounded, because you don’t foreclose on equity. You foreclose on debt,” Hamrick says.

The state hasn’t diversified its employment base beyond tourism, and hospitality employment plunged when the pandemic began, says Stephen Miller, an economics professor at the University of Nevada, Las Vegas.

It’s familiar territory for the Nevada real estate market, which was pummeled by the Great Recession. “Our recovery is going to be, like the last one, longer than the rest of the country’s,” Miller says.

Las Vegas’ vulnerable economy has scared off some real estate investors. For instance, Unison Home Ownership Investors, a company that takes equity shares in homes, says it won’t do deals in Sin City in the near future. “A place like Las Vegas would just be far too risky for us to invest right now,” says Brodie Gay, the company’s vice president of research.

The 5 least-affected states

On the other hand, some states are doing better. Those least affected by the slowdown as of September:

  • 47. Idaho. The mortgage delinquency share is 3.6 percent. However, Idaho’s jobless rate jumped to 6.1 percent in September from 4.2 percent in August.
  • 48. Montana. The jobless rate was 5.3 percent in September, and the mortgage delinquency rate was 4.4 percent.
  • 49. Utah. Unemployment was 5 percent, and just 4.6 percent of mortgages were delinquent.
  • 50. North Dakota. Its unemployment rate of 4.4 percent was well below the national average, as was the delinquency rate of 4.9 percent.
  • 51. South Dakota. The unemployment rate fell to 4.1 percent in September, down from 4.8 percent in August, and the mortgage delinquency rate was 4.6 percent, slightly up from August.

Curious about how the rankings have changed? Here’s the map for August:

Here are the rankings for July:

And here’s how the standings looked for June:

Methodology

To calculate the Housing Hardship Index, Bankrate used state-by-state mortgage delinquency data from Black Knight Inc., a prominent data firm, and state unemployment rates from the U.S. Department of Labor.

Learn more: