The proportion of mortgaged residential homes in the United States that were considered “seriously underwater” saw a slight increase last quarter, new data show on Thursday, with the ratio of a home’s principal balance to market value rising at a much faster pace in the vast majority of southern states — an indication of falling house prices that could prevent homeowners from selling their property.
HENDERSON - NOVEMBER 06: An aerial view of homes on November 6, 2008 in Henderson, Nevada. As bad ... [+]
One in 37 mortgaged homes were considered seriously underwater nationwide in the first quarter, according to the U.S. Home Equity & Underwater Report by real estate data firm ATTOM, worse than one in 38 mortgages recorded in the previous quarter — although the share still remains below pre-pandemic levels.
A mortgage is generally considered underwater or upside down when the principal on the home is more than its current market value, but such a mortgage could be “seriously underwater” when the outstanding balance of the mortgage is more than the property is worth by at least 25%.
While the national share was 2.7%, up from 2.6%, Kentucky had the biggest jump, with the portion of outstanding home balances at least a quarter more than the property’s worth hitting 8.3% in the first quarter from 6.3% in the previous quarter.
West Virginia followed closely with 5.4% from 4.4%, while Oklahoma, Arkansas and Delaware also saw increases in the portion of properties that were worth much less than a homeowner would borrow to procure them, to 6.1%, 5.7%, and 2.7% from 5.5%, 5.2% and 2.3%, respectively.
Despite the national increase, Missouri dropped to 4.5% from 5.6%, making the midwest region’s state record the biggest fall; while Mississippi stood out as one of the few southern U.S states to see declines, dropping to 8% from 7.1% in a region known for high concentrations of such home loans.
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The report also shows that 45.8% of mortgaged borrowers were considered equity-rich in the first quarter of 2024, meaning they had paid off more than half of the property’s market value. The share was down from 46.1% in the final quarter of 2023, marking the third straight quarterly decline. When compared to the same period last year, the ratio was down from 47.2%, indicating the lowest level in two years, according to the report. The figures show that the U.S. saw a lower share of equity-rich homeowners, which is an indication that fewer American mortgage owners could profit from selling their properties.
Other states with lower shares of properties with outstanding loans at least 25% more than their market values are Arizona, which was down to 1.6% from 1.9%; Hawaii also fell to 1.6% but from 1.7%; while Tennessee shrank to 2.8 from 2.9%.
During the pandemic in 2020 and 2021, mortgage interest rates dropped to a record low, falling below the 3% mark. The low rates, which made it less expensive for Americans to take out home loans, resulted in a rapid increase in housing prices across the country. However, following a series of rate hikes by the U.S Federal Reserve aimed at curbing rising inflation, mortgage rates have climbed above 7%, but home prices continued to rise, contributing to an increase in the proportion of homes that were seriously underwater.