Increase in the Percentage of US Mortgages Classified as ‘Seriously Underwater’

The latest report from property and real estate data firm ATTOM reveals some concerning trends in the U.S. housing market. The percentage of “seriously underwater” mortgages, where homeowners owe at least 25% more than the estimated market value of their property, increased slightly in the first quarter of 2024 to 2.7% of all residential mortgages. This trend was seen in 37 states, with notable increases in states like Kentucky, West Virginia, Oklahoma, Arkansas, and Delaware. On the other hand, several states saw a decrease in seriously underwater mortgages, including Missouri, Mississippi, Arizona, and Hawaii.

Louisiana and Wyoming had the highest shares of seriously underwater mortgages, while states like Vermont, Rhode Island, and New Hampshire had the smallest shares. In metropolitan areas with populations over 500,000, places like Baton Rouge, New Orleans, Jackson, Little Rock, and Syracuse had the largest shares of seriously underwater mortgages. On the flip side, the percentage of mortgages considered “equity-rich,” where owners have a loan-to-value ratio of 50% or lower, declined to 45.8% nationally in the first quarter of 2024, the lowest level in two years.

The decline in the proportion of equity-rich mortgages was seen in 26 states on a quarterly basis and 25 states from the same quarter a year ago. States like Kentucky, South Carolina, Georgia, and Delaware experienced the largest quarterly declines. However, there were some states where the level of equity-rich mortgages increased, such as South Dakota, Hawaii, Montana, North Dakota, and Mississippi. ATTOM CEO Rob Barber noted that while homeowner balance sheets have benefited from the housing boom, signs of a market slowdown are starting to emerge, indicating a shift in the market dynamics.

Barber emphasized the importance of the upcoming Spring buying season in determining if a new long-term market pattern is developing. The housing market is currently at a critical juncture, with homeowners facing increasing underwater mortgages and declining equity-rich levels. It remains to be seen how these trends will play out in the coming months and whether potential buyers will take on riskier adjustable-rate mortgages as affordability worsens. As the market continues to evolve, homeowners and industry experts will need to stay vigilant and adapt to changing conditions to navigate the complex housing landscape effectively.