Underwater mortgage share at 5-year low

Second-quarter price appreciation helped bring the share of seriously underwater mortgages to its lowest since 2019, according to a new home equity report.

Only one in 42 of U.S. mortgages, or 2.4%, were labeled "seriously underwater," with the balance owed at least 25% more than the underlying home's estimated value, according to real estate data platform Attom. The share is the lowest since at least 2019 and headed downward from 2.7% in the first quarter.  

On the other side of the coin, this year's rise in home prices led the percentage of equity-rich households, whose combined loan balances are less than half of market value. Just under half, or 49.2% of homeowners, fell into this category. The share jumped up from 45.8% in the first quarter, Attom said.

"Homeowner wealth took a notable turn for the better during the second quarter as equity levels piggybacked on some of the biggest home-price spikes we've seen in recent years," said Attom CEO Rob Barber, in a press release.

Prices went up during the most recent spring buying season to a new record of $365,000, easing stress on struggling homeowners while increasing wealth for others, Attom found. 

"After a period where equity seemed stagnant or even declining, this brought another boost of good news for homeowners from the enduring housing market boom," Barber added. The equity-rich share increased for the first time since second quarter 2023, when it also stood at 49.2%.

Similarly, other researchers reported home equity levels also rising to all-time highs earlier this year. 

The new report follows the release of several home price indexes in 2024 showing home values sustaining their growth to record-highs. Data over the past 12 months showed the pace of growth moderating, though, with occasional wide variations by region. Some parts of the country saw housing costs fluctuate, sometimes falling on either a monthly or quarterly basis. 

Equity-rich households grew in 48 states, and the largest quarter-on-quarter upward moves in wealth were seen in the South and Midwest, according to Attom. Kentucky posted the biggest jump to 37.4% from 28.7%. Illinois and Missouri saw the next largest growth rates. 

At the same time, the two regions also have the dubious distinction of leading the country in seriously underwater mortgages. Eighteen out of the top 20 states with the most seriously underwater loans by market share were located in the South or Midwest, led by Louisiana at 10.5%. Its neighbor to the east, Mississippi, followed at 6.8%, with Kentucky at 6.3%.

The South and Midwest also lagged the rest of the country in the total share of equity-rich homeowners. Louisiana landed on the bottom rung at only 21% of households meeting the criteria. 

On the opposite end of the spectrum, Vermont, Maine and New Hampshire have the largest share at 83.5%, 61.5% and 61.1%, respectively.  

Recent housing trends point to a continuation of good news for homeowners as well, according to Barber. 

"Supplies of homes for sale remain limited these days, and buyer demand is typically elevated during the summertime. So, it should be no surprise if home values go even higher and take equity along for the ride."