Is the housing market at risk as more homeowners slip underwater?

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A modest rise in negative equity is emerging across parts of the U.S. housing market, but the overall picture remains far more stable than anything resembling the Global Financial Crisis.

Having negative equity—commonly known as being “underwater”—means a homeowner owes more on their mortgage than the home’s current market value. According to ICE Mortgage Technology, just 1.0% of U.S. mortgages were underwater in April 2025. By October 2025, that share rose to 1.6%. That’s an uptick, but still extremely low by historical standards. For comparison, during the worst of the foreclosure crisis in September 2009, 23.0% of homeowner mortgages were underwater, per CoreLogic/First American.

Where the pressure is building

The recent rise in underwater mortgages is concentrated in three areas:

1. VA and FHA loans: These programs typically involve lower down payments, which means borrowers start with thinner equity cushions. When home prices slip even modestly, these homeowners can move underwater more quickly than conventional borrowers.
2. Recent vintages: Borrowers who purchased in 2023, 2024, or 2025—often at elevated price levels and still-tight affordability—have had limited time to pay down their balances. If their local markets have cooled, they’re more exposed to negative equity.
3. Metros with post-boom corrections: The markets seeing the most underwater pressure tend to be in the Southwest, Southeast, and West—regions that experienced some of the sharpest run-ups during the Pandemic Housing Boom and then the clearest price reversals. Metros with elevated underwater shares include places like Cape Coral, Lakeland, North Port, Palm Bay, Jacksonville, and Tampa in Florida; Austin, Dallas, and San Antonio in Texas; and Colorado Springs.

Why negative equity remains rare nationally

Despite localized corrections, underwater mortgages remain scarce nationwide. Three major factors explain why.

• National home prices are still near record highs. While certain Sun Belt and Western markets have given back some of their pandemic gains, national home price indices remain close to peak levels. Those broad gains continue to cushion the national equity picture, even as some metros soften.
• The amortization benefit of ultra-low pandemic mortgage rates. Millions of homeowners locked in 2%–3% fixed rates in 2020 and 2021. Because lower rates allocate more of each payment toward principal from day one, these borrowers have built equity unusually quickly. As of late 2024, more than half of outstanding mortgage holders had rates below 4%, accelerating their debt paydown and widening their equity buffers.
• Few buyers purchased at the exact peak. Even in markets that have corrected, such as Austin or Cape Coral, only a small slice of homeowners bought at the absolute top in early 2022. Most owners purchased earlier—and at lower prices—leaving them well above water today.