Underwater Mortgages Are On The Rise

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Underwater Mortgages Are On The Rise

Michael Carbonare
Investor · Fort Lauderdale, FL · Member since 2013 · 919 posts · 607 votes

New data from ATTOM's Q2 2026 Home Equity & Underwater Report:
3.2% of mortgaged homes are now "seriously underwater", up from 2.7% a year ago
Minnesota saw the sharpest spike in the country, jumping from 2.6% to 12.1% underwater in a single year.
The trend worsened in 33 states and Washington, D.C.

Only 41.1% of mortgaged U.S. homes are now "equity-rich", down from 43.3% last quarter and 47.4% a year ago. That's four straight quarterly declines.

For most of the last five years, the story was record home equity and homeowners sitting on windfalls. That story is quietly reversing.
Rates cooled prices. Prices cooled equity. And a growing number of homeowners are watching a cushion they thought was permanent shrink every quarter.
Worth watching where this goes from here.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
3w

owners are going to have to ride through the trough or lose money to exit.. I would say virtually every FHA 5% down loan is underwater and by a bunch in some areas.

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  • Caleb Brown
    Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
    3w

    Interesting to see

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    3w

    owners are going to have to ride through the trough or lose money to exit.. I would say virtually every FHA 5% down loan is underwater and by a bunch in some areas.

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
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    • Michael Carbonare
      OP
      Investor · Fort Lauderdale, FL · Member since 2013 · 919 posts · 607 votes
      3w

      Adding fuel to the fire, not unexpectedly the Fed hiked rates a quarter point today, and suggested there will be more to come.

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  • Igor Ganapolsky
    Coral Springs, FL · Member since 2018 · 487 posts · 106 votes
    3w

    Michael, this is literally my pipeline in Broward County. I buy at tax deed auctions, and the connection between underwater mortgages and what shows up at tax sales is direct but delayed.

    Here's what I'm seeing locally: owners who went underwater in 2022-2023 peak pricing are now in year two or three of being stuck. They can't sell without bringing cash to closing. So what happens? They stop maintaining. Then they stop paying property taxes. Then the county takes it. It's an 18-24 month lag from "underwater" to "tax deed sale."

    The Minnesota spike you mentioned is wild - 2.6% to 12.1% in one year. That's going to show up at their tax deed auctions in force next year.

    Jay's right about FHA 5% down loans. Those buyers had virtually no equity cushion when prices softened even 5-8%. In South Florida, a lot of those 2021-2022 FHA buyers are now underwater AND behind on HOA fees. That's a double squeeze.

    The part nobody's talking about: equity-rich doesn't mean equity-accessible. A lot of these homeowners have technically positive equity but can't afford to sell because their next house has the same rate problem. So they stay put and resent the property. That's how you get the tax delinquency.

    I'm underwriting tax deed deals right now at 40-50% of what I'd pay for the same house on MLS. Not because it's distressed physically, but because the ownership structure is broken. The previous owner couldn't exit and just walked away from the tax bill.

    This trend has legs. The Fed hiking today just extended the timeline for recovery. Anyone watching this data should be building their deal pipeline now, because the distress wave from today's underwater stats hits tax auctions in late 2027.

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  • Michael Carbonare
    OP
    Investor · Fort Lauderdale, FL · Member since 2013 · 919 posts · 607 votes
    3w

    I've been surprised at the resilience and stubborness of sellers who I have spoken with over the past two years or so. Anchored to 2022 prices they refused to come down off the hilltop. But recently I am beginning to sense and see cracks in their armor. A few recently told me they regret not selling last year because even with two price drops they not getting any bites. In short, there are buying opportunities today and there will be more.

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