More Homeowners Are ‘Underwater’ on Their Mortgages

Falling Underwater

The number of homeowners who owe the bank much more than their house is worth ticked up in the first quarter of 2024.

Last quarter, 1 of 37 Americans were “seriously underwater” on their mortgage, according to the 2024 U.S. Home Equity & Underwater Report by property data provider ATTOM. “Seriously underwater” refers to when a homeowner’s loan balance exceeds the market value of their home by 25% or more. This can happen when a person overpays for their home, uses a small down payment, or gets caught in a market correction.

Equity Levels Drop

The percentage of residential mortgages that are “seriously underwater” rose from 2.6% to 2.7% in the first quarter of this year, according to the report. These homeowners are particularly concentrated in southern states, such as Kentucky, Mississippi, Oklahoma, and Louisiana.

While it’s not a sharp rise, the increase could have broader implications and indicates the number of equity-rich Americans is dipping, likely due in large part to a slowing real estate market. The report also found that the number of “equity-rich” mortgages decreased in more than half of all U.S. states (26 of 50) from Q4 2023 to Q1 2024.

What Does This Mean?

The rise of “seriously underwater” mortgages could also signal that home values are falling, or that Americans are struggling to pay off their mortgages amid high borrowing costs and persistent inflation. Either way, with less equity to leverage, homeowners may have a harder time selling or refinancing, potentially creating another hurdle for an already-turbulent housing market.

The good news is that, while this figure may be increasing, it remains well below pre-pandemic levels. Additionally, while home equity levels are starting to drop, nearly half (45.8%) of all mortgaged residences were still considered “equity-rich” as of Q1 2024.

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