{"id":186912,"date":"2026-02-20T14:14:20","date_gmt":"2026-02-20T21:14:20","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=186912"},"modified":"2026-02-20T14:14:22","modified_gmt":"2026-02-20T21:14:22","slug":"americas-most-underwater-housing-markets-present-a-golden-opportunity-for-investors","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/americas-most-underwater-housing-markets-present-a-golden-opportunity-for-investors","title":{"rendered":"America\u2019s Most Underwater Housing Markets Present a Golden Opportunity For Investors"},"content":{"rendered":"\n<p><span data-preserver-spaces=\"true\">The combination of foreclosures and falling housing prices is like throwing chum into the water for a group of hungry sharks eager for deals. In some states, as mortgages slip into negative <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/what-is-home-equity\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">equity<\/span><\/a><span data-preserver-spaces=\"true\"> and banks seize possession of homes, the fins have started to circle.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Underwater Homes <\/span><span data-preserver-spaces=\"true\">Are Clustered<\/span><span data-preserver-spaces=\"true\"> in Specific States<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">It\u2019s not a feeding frenzy yet, however. According to a fourth-quarter 2025 home equity study by real estate data specialists<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.attomdata.com\/news\/market-trends\/home-sales-prices\/q4-2025-home-equity-and-underwater-report\/#:~:text=The%20ATTOM%20Q4%202025%20U.S.,remaining%20near%20historically%20low%20levels.\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\"> ATTOM<\/span><\/a><span data-preserver-spaces=\"true\">, the percentage of homes that are at least 25% underwater\u2014meaning that mortgage balances are at least 25% above market value\u2014<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.attomdata.com\/news\/most-recent\/seriously-underwater-by-state\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">has increased to 3%<\/span><\/a><span data-preserver-spaces=\"true\"> of all mortgages, up from 2.5% a year earlier.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">That\u2019s not astounding news in itself, but what is interesting is that the underwater homes are clustered in specific states, each with between about 5% and 11% of mortgaged homes in deep negative equity:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Louisiana<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Mississippi<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Kentucky<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Iowa<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Arkansas<\/span><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">Should these homeowners be forced to sell and cannot find a buyer because their debt exceeds the home\u2019s value, they could find themselves handing the keys back to the bank, which would then list the home for sale as an REO. In a declining market, that\u2019s a golden opportunity for investors.<\/span><\/p>\n\n\n\n<p><a class=\"editor-rtfLink\" href=\"https:\/\/www.homes.com\/news\/us-home-equity-slips-as-underwater-mortgages-edge-up\/191286441\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Analyzing the ATTOM data<\/span><\/a><span data-preserver-spaces=\"true\">, Homes.com chief economist Brad Case said:<\/span><\/p>\n\n\n\n<p><em><span data-preserver-spaces=\"true\">\u201cWhen homes get into negative equity, there are three typical reasons. One, they used a very low <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/down-payment\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">down payment<\/span><\/a><span data-preserver-spaces=\"true\">; two, they used a long amortization schedule, meaning that the period during which most of their mortgage payment was interest rather than principal lasted for a long time<\/span><span data-preserver-spaces=\"true\">; and three<\/span><span data-preserver-spaces=\"true\">, the value of the house went down, either because they bought at the top of the market or because they paid more than it was worth even at the time they bought it.\u201d<\/span><\/em><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Case added, &#8220;The bigger problem is that some buyers are likely to have assumed that the $100,000 increase they saw over the previous year will continue indefinitely, and they will have been willing to overpay to get in on (not quite) the ground floor.\u201d<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">That kind of thinking led to the 2008 financial crash. However, we are a long way from that, with only some markets showing increased homes underwater while others, particularly in the Midwest, are in good health.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The same ATTOM data showed that equity-rich properties, where the total secured debt is half of the home&#8217;s value, dropped from 46.1% in the third quarter of 2025 to 44.6% in the fourth quarter. However, Case categorizes this as \u201cnormalization\u201d rather than a market in free fall.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Stress, Foreclosures, and the Landlord Exodus Narrative<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">When the decline in home equity and the increase in homes underwater <\/span><span data-preserver-spaces=\"true\">are analyzed<\/span><span data-preserver-spaces=\"true\"> alongside the growing issues with household credit, a narrative begins to emerge: The population\u2014especially those with moderate incomes\u2014is under increasing financial strain.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">\u201cIn lower-income areas and in areas experiencing worsening labor markets or housing market conditions, we are seeing mortgage delinquencies grow at a fast pace,\u201d<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.reuters.com\/markets\/wealth\/us-household-credit-troubles-worsened-end-2025-new-york-fed-says-2026-02-10\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\"> economists at the Federal Reserve Bank of New York said<\/span><\/a><span data-preserver-spaces=\"true\"> in a<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.newyorkfed.org\/medialibrary\/interactives\/householdcredit\/data\/pdf\/HHDC_2025Q4\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\"> recent report<\/span><\/a><span data-preserver-spaces=\"true\">. The states with higher underwater properties and an<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.realtor.com\/news\/trends\/foreclosure-rate-us-2025-data-attom\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\"> increase in foreclosures<\/span><\/a><span data-preserver-spaces=\"true\">\u2014including default notices, scheduled auctions, and bank repossessions\u2014up 32% from a year ago, according to<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.attomdata.com\/news\/most-recent\/foreclosure-rates-by-state\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\"> ATTOM data,<\/span><\/a><span data-preserver-spaces=\"true\"> hint at a pipeline of motivated sellers and lenders.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">A \u201cLandlord Exodus\u201d<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Layered on top of these trends is an increasingly worrying one for investors: A \u201clandlord exodus\u201d shows that in certain metros\u2014most prevalently in Florida and Texas\u2014landlords are heading for the hills due to a combination of pricing, rent burden, regulatory friction, and poor landlord-friendliness metrics.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The analysis, a January 2026 report, \u201c<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/gighz.com\/2026-landlord-exodus\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Landlord Exodus &amp; Housing Stress Index<\/span><\/a><span data-preserver-spaces=\"true\">,\u201d which was published by GigHz and combines Zillow housing and rent indices and state regulatory datasets, shows that low-income households in rent-controlled markets apportion roughly 42% of their income to rent, compared to about 29% in more landlord-friendly states, which shows how tight regulation can coincide with higher rent burdens.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The U.S. housing market has split into four capital zones, according to Dr. Pouyan Golshani, founder of GigHz Capital and developer of RadReport AI. &#8220;Investors and landlords aren&#8217;t villains or heroes; they&#8217;re actors responding rationally to regulation, supply, and affordability,&#8221; he added.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Why the Midwest Keeps Coming Out Ahead<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Conversely, certain Midwest and Northeast markets remained resilient, according to the landlord exodus report:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Rockford, Illinois<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Erie, Pennsylvania<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Utica, New York<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">St. Joseph, Missouri<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Janesville, Wisconsin<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Canton, Ohio<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Syracuse, New York<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Cleveland, Ohio<\/span><\/li>\n<\/ul>\n\n\n\n<p><span data-preserver-spaces=\"true\">In these markets, affordability and job stability have created a favorable environment for homebuyers and landlords alike, in stark contrast to speculative spikes seen in the Sunbelt and coastal markets.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">This<\/span> <span data-preserver-spaces=\"true\">was echoed<\/span><span data-preserver-spaces=\"true\"> by the<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.neighborsbank.com\/learn\/best-cities-for-first-time-buyers\/\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\"> Neighbors Bank\u2019s Best Cities for First-Time Homebuyers in 2026<\/span><\/a><span data-preserver-spaces=\"true\">, which <\/span><span data-preserver-spaces=\"true\">was dominated<\/span><span data-preserver-spaces=\"true\"> by Midwestern cities.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">The Play for Landlords<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">Landlords looking for a deal have a few options. The trend line in certain Southern and Sunbelt states is of homeowners under increasing financial strain. If a house has negative equity, a \u201cWe Buy Houses\u2014are you facing foreclosure or underwater?\u201d mailer, online ad, or bandit sign will be of little use\u2014if you wish to get a home at a discount\u2014unless you can work out a deal with the lender.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Many lenders are sitting on the sidelines,<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.nar.realtor\/magazine\/real-estate-news\/2026-mortgage-market-trends-to-watch-a-qa-with-a-lending-expert\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\"> waiting to see what happens<\/span><\/a><span data-preserver-spaces=\"true\"> with interest rates and hoping for a <\/span><span data-preserver-spaces=\"true\">rush of buyers<\/span><span data-preserver-spaces=\"true\">. However, when owners have credit card debt, are behind on payments, or landlords <\/span><span data-preserver-spaces=\"true\">are burned out<\/span><span data-preserver-spaces=\"true\"> from bad tenants and restrictive municipalities, it might be possible to strike a deal, ask the owner to hold the note, or <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/assumable-mortgages\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">assume a mortgage<\/span><\/a><span data-preserver-spaces=\"true\"> if the interest rate is low. <\/span><span data-preserver-spaces=\"true\">Or if there is equity, <\/span><span data-preserver-spaces=\"true\">simply<\/span><span data-preserver-spaces=\"true\"> buy it outright.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Final Thoughts<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">For landlords unable to make a move now, there is plenty to keep an eye on. <\/span><span data-preserver-spaces=\"true\">If the trend <\/span><span data-preserver-spaces=\"true\">for<\/span><span data-preserver-spaces=\"true\"> underwater or near-underwater homes in specific markets continues, with declining values and interest rates remaining where they are, motivated sellers and lenders might be open to creative deal structures, including <\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/rookie-podcast-140\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">seller financing<\/span><\/a><span data-preserver-spaces=\"true\">, rent-to-own arrangements, or <\/span><span data-preserver-spaces=\"true\">purchasing<\/span><span data-preserver-spaces=\"true\"> discounted <\/span><span data-preserver-spaces=\"true\">portfolios<\/span><span data-preserver-spaces=\"true\">, especially if the houses <\/span><span data-preserver-spaces=\"true\">are in<\/span><span data-preserver-spaces=\"true\"> need <\/span><span data-preserver-spaces=\"true\">of<\/span><span data-preserver-spaces=\"true\"> repair.<\/span><span data-preserver-spaces=\"true\">&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Pair this information with the fundamentals\u2014jobs, population trends, regulatory climate, and realistic rent projections\u2014and the map of underwater mortgages can double as an early indicator of next investment hot spots.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The combination of foreclosures and falling housing prices is like throwing chum into the water for a group of hungry sharks eager for deals. In some states, as mortgages slip [&hellip;]<\/p>\n","protected":false},"author":613725,"featured_media":186915,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[8],"tags":[],"class_list":["post-186912","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-trends"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/186912","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613725"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=186912"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/186912\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/186915"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=186912"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=186912"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=186912"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}