15 housing markets with the highest home price correction risk, according to Parcl Labs

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We’ve moved from the stronger spring season, where there’s usually the most upward pressure on home prices, into the softer seasonal period. Historically, regional housing markets in correction mode often remain flat during the stronger spring season, only to see price declines during the softer period later in the year.

This week, Parcl Labs published a list of the 15 housing markets at the highest risk of home price correction that we should watch during the fall and winter months. To conduct the analysis (scroll down for their methodology), they pulled data from the Parcl Labs API.

While there's no guarantee that these regional markets will experience a material home price correction, they are showing signs of softening. At the very least, buyers in these markets have more leverage than they did a few years ago.

Click here to view an interactive of the map below

The 15 markets with the highest correction risk, according to Parcl Labs:

• Crestview-Fort Walton Beach-Destin, FL

• Daphne-Fairhope-Foley, AL

• Deltona-Daytona Beach-Ormond Beach, FL

• Gainesville, FL

• Homosassa Springs, FL

• Lakeland-Winter Haven, FL

• Miami-Fort Lauderdale-Pompano Beach, FL

• Myrtle Beach-Conway-North Myrtle Beach, SC

• Naples-Marco Island, FL

• Ocala, FL

• Orlando-Kissimmee-Sanford, FL

• Palm Bay-Melbourne-Titusville, FL

• Port St. Lucie, FL

• Sebastian-Vero Beach, FL

• Tampa-St. Petersburg-Clearwater, FL

The most notable thing is that 13 of the 15 housing markets Parcl Labs labeled as "at risk" are in Florida.

Over the past year, active inventory has been rising at an accelerated pace in many Florida housing markets. Some of that is due to Hurricane Ian, which struck in September 2022, creating additional softening in Southwest Florida. Some of it is a result of spiked home insurance premiums, which have further stretched Florida affordability that was already strained by high home prices and insurance premiums. Additionally, changes passed in Florida following the Surfside condo collapse in 2021 have put downward pressure on many older condos along the Florida coastline.

Click here to view an interactive of the chart below

How did Parcl Labs conduct the analysis?

1. They pulled data for the 1,000 largest U.S. housing markets, using the Parcl Labs API. They excluded small markets with fewer than 500 home sales and 500 active listings.

2. They only included markets where demand (i.e. home sales) is declining on a rolling 3-month moving average of year-over-year change by more than -10%.

3. They only included markets where supply (i.e. active inventory) is increasing on a rolling 3-month moving average of year-over-year change by more than 20%.

4. They included markets with “signs of stress” in the listing market, evidenced by >35% of inventory seeing price reductions.

5. To find markets where fundamentals are stressed, Parcl Labs only included markets where home prices are still up at least 50% since March 2020.

6. To exclude markets already passing through a home price correction, like Austin, they excluded markets where local home prices have already fallen over 5% since their peak.

“These real-time insights suggest that the subtle "cracks" identified earlier in our analysis may be widening. The consistency of downward trends across multiple Florida markets indicates that previously observed supply-demand imbalances and increased price cuts are now translating into actual price declines. This emerging weakness in prices, particularly in high-performing markets like Tampa and Miami, could signal the early stages of a market correction in the region,” wrote Jason Lewris, co-founder of Parcl Labs, in the report.

Nothing in this newsletter is investment advice. Please do your own research.