Number of Mortgages Considered ‘Seriously Underwater’ Rises in First Quarter

In the first quarter of 2024, the U.S. housing market showed signs of cooling off, as evidenced by a new report from property and real estate data firm ATTOM.

The report revealed that the percentage of mortgages classified as “seriously underwater” increased slightly, while the proportion of “equity-rich” mortgages declined for the third quarter in a row.

According to ATTOM’s definition, a mortgage is considered “seriously underwater” when the loan-to-value ratio exceeds 125%, indicating that property owners owe at least 25% more than the estimated market value of their property.

The report found that 2.7% of all residential mortgages fell into this category in Q1 2024, up from 2.6% in the previous quarter.

The trend of increasing seriously underwater mortgages was observed in 37 states, with Kentucky, West Virginia, Oklahoma, Arkansas, and Delaware experiencing the most significant increases.

However, some states, such as Missouri, Mississippi, Arizona, and Hawaii, saw notable decreases in the percentage of seriously underwater mortgages during the same period.

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Louisiana and Wyoming had the highest shares of seriously underwater mortgages at 11.3% and 8.8%, respectively, followed by Kentucky, Mississippi, and Oklahoma.

On the other hand, Vermont, Rhode Island, New Hampshire, California, and Massachusetts had the lowest shares of seriously underwater mortgages.

The report also examined the percentage of “equity-rich” mortgages, which are those with a loan-to-value ratio of 50% or lower, meaning the owner has at least 50% equity in their property.

In Q1 2024, the proportion of equity-rich mortgages fell to 45.8%, the lowest level in two years, down from 46.1% in the previous quarter and 47.2% in Q1 2023.

Equity-rich levels declined in 26 states on a quarterly basis and 25 states compared to the same quarter a year ago.

The most significant quarterly declines were observed in Kentucky, South Carolina, Georgia, and Delaware.

However, some states, such as South Dakota, Hawaii, Montana, North Dakota, and Mississippi, experienced increases in the level of equity-rich mortgages.

ATTOM CEO Rob Barber commented on the findings, stating, “Homeowner balance sheets continue to benefit in a huge way from the boom times in the form of elevated equity that can be used to finance all kinds of things, from home renovations to business startups.

Still, the windfalls are starting to erode bit by bit amid mounting signs that the market is no longer so superheated.”

Barber also emphasized the importance of this year’s Spring buying season in determining whether a new long-term market pattern is developing, given the recent trends and the typically slower Fall and Winter months.

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As the U.S. housing market continues to adjust to changing economic conditions, the shifts in seriously underwater and equity-rich mortgages will be closely monitored by homeowners, investors, and industry experts alike.