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The proportion of U.S. mortgaged properties considered seriously underwater increased to 2.8% in the third quarter of 2025, up from 2.7% the previous quarter and 2.5% a year earlier. This trend, observed in 46 states year-over-year, signals a shift from the peak equity growth of 2022. A seriously underwater mortgage, defined as having a loan-to-value (LTV) ratio of 125% or higher, means the homeowner owes at least 25% more than the property's estimated market value. While not yet a crisis, this rise is a warning sign for potential slower price growth and increased risk of distressed sales, particularly in regions facing economic headwinds.
Several economic and personal financial factors can lead to a homeowner owing significantly more than their home is worth. Primarily, a decline in local home prices is a direct cause. If a homeowner purchases a property with a small down payment, they have little equity buffer to withstand a market downturn. As explained by industry analysis, "Falling home prices, stagnant property values, or purchasing with little down payment can reduce equity." Other contributing factors include refinancing and taking on additional loans against the property, which increase the total loan balance. Furthermore, a decline in the local economy, leading to job losses or income reduction, can make it difficult for homeowners to keep up with payments, increasing the risk of foreclosure.
The most significant annual increases in seriously underwater properties are concentrated in specific metropolitan areas. The top five regions with the largest jumps are:
Based on our experience assessment, these increases are often linked to a combination of rising homeownership costs, slower price appreciation, and local economic challenges. Southern states, which saw rapid price gains during the pandemic, are now more vulnerable as higher mortgage rates test affordability. Even small price drops can push recent buyers with minimal equity into underwater territory.
The Washington, D.C., and Maryland areas demonstrate how unique local events can impact housing equity. Typically equity-rich, these metros are currently contending with two major issues. First, a large-scale real estate fraud scheme in Baltimore resulted in hundreds of millions of dollars worth of properties entering foreclosure. Second, a significant government shutdown created widespread job uncertainty and furloughs. When households experience interrupted income, their ability to pay mortgages is directly compromised, dampening housing demand and placing downward pressure on prices. The effects of such economic events are often prolonged, even after a shutdown concludes.
While the percentage may be growing slower in some states, the overall share of seriously underwater homes remains highest in:
Louisiana is particularly affected, with 21 of its counties ranked among the 30 U.S. counties with the lowest proportions of equity-rich homes. An equity-rich property is one where the estimated loan-to-value ratio is 50% or less, meaning the homeowner has at least 50% equity. Conversely, Florida, despite having high foreclosure rates, does not appear on the list of states with the fastest-growing seriously underwater mortgages. This suggests that while some homeowners face payment distress, property values in the state may have provided enough equity to prevent a widespread surge in seriously underwater status.
For homeowners, being seriously underwater creates significant financial limitations. It eliminates the possibility of a traditional sale, as the proceeds would not cover the mortgage payoff amount. This can also block access to cash-out refinancing or home equity lines of credit (HELOCs), which rely on available equity. Most critically, a seriously underwater position is a primary indicator of foreclosure risk, as walking away from the property can sometimes appear financially preferable to continuing payments on an asset with negative equity. Homeowners in this situation should seek guidance from a HUD-approved housing counselor to understand their options, which may include loan modification or a short sale.
The national trend underscores the importance of sustainable home buying. Purchasing a home with a substantial down payment and securing a manageable monthly payment provides a crucial equity buffer against future market fluctuations. For current homeowners, understanding local economic conditions and property values is key to assessing financial health and mitigating the risk of becoming underwater on your mortgage.
