Most homeowners have comfortable mortgage equity cushions that are boosting their net worth while allowing them access to low-cost borrowing. But, in some pockets of America, those who bought in recent years face the opposite experience: their homes are "underwater," meaning they owe more on their mortgage than their home is worth.
This is also called negative equity.
Times are still great for those with positive equity. Earlier this year, The Wall Street Journal reported, "Home equity has climbed nearly 80% since early 2020 — up from $19.5 trillion — thanks to a turbocharged rise in house prices."
That translates as American homeowners sharing $35 trillion in housing wealth. Unfortunately, that amount isn't spread evenly across the country.
"As figures from the July Mortgage Monitor bear out, national averages don’t tell the full story," said Tim Bowler, President of ICE Mortgage Technology. "We’re seeing early signs of risk building within specific markets and within specific borrower populations, like borrowers with limited equity or who are behind on student loans."
Florida and Texas Face Particular Problems
The underwater phenomenon is most common so far in Florida and Texas, although there are pockets in many other states where lower levels of negative equity exist.
Those most affected within those pockets tend to be recent buyers. Fast Company was given special access to ICE Mortgage Monitor's underlying data, and found that those who bought their homes in 2024 were more affected by higher negative equity than those who bought in 2023. And those who bought in 2023 had higher levels than those who bought in 2022.
In most affected markets, people who bought before 2020 had little or no exposure to negative equity.
"Price softening continued to spread from the Sunbelt into the Western U.S. in June, with 26 major markets seeing prices down from the same time last year and 41 markets declining on a seasonally adjusted basis in June," said ICE.
With its access to additional data, Fast Company compiled a list of the markets most affected by negative equity. Here are the top 10 areas by percentage of "underwater" homes.
- Cape Coral, Florida: 7.8% are underwater
- Lakeland, Florida: 4.4%
- San Antonio: 4.3%
- Austin: 4.2%
- North Port, Florida: 3.8%
- Jacksonville, Florida: 2.9%
- Baton Rouge, Louisiana: 2.8%
- Palm Bay, Florida: 2.7%
- New Orleans: 2.7%
- Deltona, Florida: 2.6%
What Is Causing Negative Equity?
As ICE implies, the growth in negative equity in some places is largely a result of softening home prices. Sellers simply can't get offers at the sorts of levels they could last year and the couple of years before.
"'A typical decade’s worth of home-value growth was packed into just five years, starting in 2020,'" Kara Ng, a senior economist at Zillow, told The Wall Street Journal in June. "Housing demand was driven by a perfect blend of low mortgage rates, high consumer savings and more people desiring larger spaces. Just about every major market experienced robust price growth, but the trend was turbocharged in some Sunbelt cities where remote workers flocked during the pandemic."
Other factors may also be contributing to the softening of home prices in affected areas. Realtor.com suggests that homeowners insurance, taxes, and homeowners association fees are skyrocketing in Florida. The more it costs to own a home, the less it's worth.
Is This 2008 All Over Again?
The good news is that there are few signs of this turning into another 2008-09, when negative equity dogged millions of homeowners nationwide.
"Today’s numbers clearly illustrate the difference since the housing bubble," says Realtor.com. "In 2009, roughly a quarter of U.S. homeowners were underwater on their mortgage. Today, that share is only in a handful of markets, and in the areas affected, the total share is under 8%."
Meanwhile, today's homeowners are generally more financially robust. They've had to meet much higher underwriting (lending criteria) standards than were in place before the credit crunch. And unemployment and falling wages, which were big issues in 2008-09, are much less troubling now.
Assuming the economy doesn't suddenly tank, there's every reason to hope that areas affected by negative equity will recover in the coming years. If your home is underwater, it's horrible. But your pain may not last as long as you fear.
