‘Seriously Underwater’ Homes Surge Across US – Here Are States With Biggest Jumps

Topline

The proportion of mortgaged residential homes in the United States that were considered “seriously underwater” saw a slight increase last quarter, new data show on Thursday, with the ratio of a home’s principal balance to market value rising at a much faster pace in the vast majority of southern states — an indication of falling house prices that could prevent homeowners from selling their property.

HENDERSON – NOVEMBER 06: An aerial view of homes on November 6, 2008 in Henderson, Nevada. As bad loans drove homeowners originally into foreclosure earlier this year, rising unemployment is now fueling the mortgage crisis downhill spiral. (Photo by Ethan Miller/Getty Images) Getty Images

Key Facts

One in 37 mortgaged homes were considered seriously underwater nationwide in the first quarter, according to the U.S. Home Equity & Underwater Report by real estate data firm ATTOM, worse than one in 38 mortgages recorded in the previous quarter — although the share still remains below pre-pandemic levels.

A mortgage is generally considered underwater or upside down when the principal on the home is more than its current market value, but such a mortgage could be “seriously underwater” when the outstanding balance of the mortgage is more than the property is worth by at least 25%.

While the national share was 2.7%, up from 2.6%, Kentucky had the biggest jump, with the portion of outstanding home balances at least a quarter more than the property’s worth hitting 8.3% in the first quarter from 6.3% in the previous quarter.

West Virginia followed closely with 5.4% from 4.4%, while Oklahoma, Arkansas and Delaware also saw increases in the portion of properties that were worth much less than a homeowner would borrow to procure them, to 6.1%, 5.7%, and 2.7% from 5.5%, 5.2% and 2.3%, respectively.

Despite the national increase, Missouri dropped to 4.5% from 5.6%, making the midwest region’s state record the biggest fall; while Mississippi stood out as one of the few southern U.S states to see declines, dropping to 8% from 7.1% in a region known for high concentrations of such home loans.

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Tangent

The report also shows that 45.8% of mortgaged borrowers were considered equity-rich in the first quarter of 2024, meaning they had paid off more than half of the property’s market value. The share was down from 46.1% in the final quarter of 2023, marking the third straight quarterly decline. When compared to the same period last year, the ratio was down from 47.2%, indicating the lowest level in two years, according to the report. The figures show that the U.S. saw a lower share of equity-rich homeowners, which is an indication that fewer American mortgage owners could profit from selling their properties.

Surprising Fact

Other states with lower shares of properties with outstanding loans at least 25% more than their market values are Arizona, which was down to 1.6% from 1.9%; Hawaii also fell to 1.6% but from 1.7%; while Tennessee shrank to 2.8 from 2.9%.

Key Background

During the pandemic in 2020 and 2021, mortgage interest rates dropped to a record low, falling below the 3% mark. The low rates, which made it less expensive for Americans to take out home loans, resulted in a rapid increase in housing prices across the country. However, following a series of rate hikes by the U.S Federal Reserve aimed at curbing rising inflation, mortgage rates have climbed above 7%, but home prices continued to rise, contributing to an increase in the proportion of homes that were seriously underwater.

Further Reading

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