MW Nearly 900,000 new homeowners are underwater on their mortgages, signaling a troubling shift in the housing market

By Aarthi Swaminathan

Being 'underwater' means you owe more on your mortgage than your home's worth - which is happening more as home prices fall

Homeowners who are underwater on their mortgage are more likely to be in the Sun Belt, such as in Florida or Texas, a new report suggests.

Nearly 900,000 homeowners are underwater on their mortgage as home prices fall, signaling a worrying turn in the housing market.

That figure represents 1.6% of all mortgage holders in the U.S. While the share may seem like a small part of the overall market, it's also the highest rate in three years, according to a new report by Intercontinental Exchange $(ICE)$.

As existing-home sales remain on track to hit a 30-year low, home prices are losing steam due to years of tepid demand from home buyers. A homeowner is underwater on their mortgage when they owe more on their mortgage than their home is worth.

Home values in some parts of the country, such as Austin, Texas, have fallen over the past year. Sharp-eyed homeowners in some areas may have already noticed a drop in their home's value as measured by real-estate platform Zillow's (Z) Zestimate.

Read more: Home prices are overinflated in many parts of the U.S. Are we in a housing bubble?

Some of those homeowners may even find that their home's value is less than what they purchased it for. As of the start of this year's fourth quarter, 875,000 mortgage holders owed more on their homes than what they were worth, ICE said. Though the recent jump is notable, the share of underwater loans is still comparable to where levels were before the pandemic and the long-term average since 2001, with the exception of the Great Recession.

While most of the nation's homeowners have built up some equity in their homes, others "warrant closer attention," Andy Walden, head of mortgage and housing-market research at ICE, told MarketWatch, "specifically among borrowers that purchased in recent years using low-down-payment mortgages in areas where home prices have begun to soften."

Nearly 90% of mortgage holders who are underwater on their loans borrowed over the past 31/2 years, Walden noted.

Underwater mortgages were more likely to be held by people with a certain type of loan. Two-thirds used mortgages backed by the Federal Housing Administration and the Department of Veterans Affairs, which are typically used by first-time buyers and military servicemembers and veterans, Walden said.

FHA and VA loans allow buyers to purchase homes with a down payment of 3.5% or less of the home's price.

Economists say the rising number of underwater mortgages isn't alarming - yet

To be sure, even though the rising share of underwater mortgages is a troubling sign for the market, most of those owners are unlikely to be impacted if they stay put until prices go back up.

But if those homeowners were to sell their homes now, which is already a challenge in today's slow market, they would lose money.

"This has to be put in the context of aggregate equity positions being stronger than has been the case in decades, point being that this is not a signal that we are on the verge of a repeat of what we saw in the mid-2000s," Richard Moody, chief economist at Regions Financial Corporation, told MarketWatch.

But "this does pose the risk that if [homeowners underwater] run into a financial hurdle, such as the loss of a job, they may be less likely to be able to make their payment and less willing to do so," he added. "This in turn could lead to rising foreclosures; but, again, nothing even close to the magnitude of what we saw in the mid-2000s."

Neil Dutta, head of economic research at Renaissance Macro Research, told MarketWatch that the fact that so many people are underwater partly helps explain why delistings are surging.

In September 2025, the number of for-sale listings that were removed from the market was 52% higher than the previous September, according to data from Realtor.com. (Realtor.com is operated by News Corp subsidiary Move Inc.; MarketWatch publisher Dow Jones is also a subsidiary of News Corp.)

"No one wants to sell if they are in negative equity," he said.

Why nearly a million homeowners are underwater on their mortgages

The main reason these homeowners are seeing their home values fall is local market dynamics, meaning that housing supply is exceeding demand.

About 30% of markets across the U.S. saw annual price declines as of October, with the sharpest drops in Cape Coral, Fla.; North Port, Fla.; and Austin, Texas, ICE said. Comparing home prices in those metro areas with their peak reveals an even more dramatic shift.

Austin homeowners have experienced the biggest post-pandemic bust. Within the past year alone, home prices fell 4.6% in the Texas capital, ICE said. Comparing the Austin market today to its peak in May 2022, prices are down sharply, by around 22%. In other words, home prices are down nearly $130,000 between May 2022 and October 2025, ICE said.

In Austin, nearly 7% of mortgages are underwater. About a quarter of mortgages were from 2022, and over 15% from 2023 and 2024, ICE data revealed.

Many of those homes where the owners are underwater on their mortgages are "along the commuting corridor," ICE said, where younger buyers bought cheaper, lower-priced homes. Those areas saw a jump in growth post-pandemic but now are seeing soaring inventory levels push prices down.

Homeowners in Florida followed behind closely. In Cape Coral, where home prices are down 15% from their peak in June 2022, 11% of mortgages are underwater. Over a third of those loans were originated in 2023 and 2024.

These underwater homes are mostly concentrated in cheaper areas that are further inland. Coastal areas prone to flood risk have been less impacted, ICE noted.

Foreclosure rates were also the highest in Florida, according to a separate report by property-data company Attom. In Florida, one in every 2,182 housing units was facing a foreclosure action in September, the highest among all states. That's a 24% increase from the same month last year. Texas was 10th on that ranking.

-Aarthi Swaminathan

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November 13, 2025 06:01 ET (11:01 GMT)

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