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Seriously Underwater Mortgages Below 3%

Foreclosure Notice And House Keys

As final bits of year-end data covering 2022 flow in, ATTOM Data’s fourth quarter Home Equity & Underwater Report revealed that 48% of residential mortgaged properties were considered equity rich, a slight decline from the third quarter of 2022 when that same number stood at 48.5% and up from the same period in 2021 at 41.9%.

According to ATTOM, equity-rich levels have essentially doubled compared to pre-pandemic levels. The decline experienced in the fourth quarter reversed a run of 10 straight quarterly gains as the portion of equity-rich mortgage payers went down in 31 states. 

ATTOM explains this dip could be one of the first signs of how falling home prices have started to affect homeowners following a decade-long housing market boom. 

Despite the fact that equity-rich mortgages have increased, the report also revealed that 2.9% of mortgaged homes, or 1-in-34 housing units, were considered seriously underwater in the fourth quarter of 2022. This figure is unchanged from the third quarter of 2022 and is down from 3.1%, or 1-in-32 properties a year earlier. 

In total, 94.1% of homeowners had some sort of equity built up in their properties during the fourth quarter; this number is slightly down from 94.3% but up from 93.5% from a year prior. The portion of homeowners with equity rises further when accounting for homeowners who have paid off their home loans. 

“Dents are beginning to surface in the armor around the U.S. housing market after 11 years of a strong showing for owners,” said Rob Barber, CEO for ATTOM. “Home values have been dropping since the middle of last year, which appears to be starting to cut into homeowner equity around the country.” 

“That’s probably happening because values are sinking faster than owners are paying off their mortgages,” Barber continued. “How that shakes out over the next few months will depend on a lot of factors, including where interest rates go. But for now, it looks like the runup in wealth flowing from owning homes has stalled along with the market.” 

Among the major regions of the country, the West saw the biggest drops in home equity levels. The fourth-quarter declines were led by Idaho (portion of mortgages homes considered equity-rich decreased from 65.8% in the third quarter of 2022 to 61.6% in the fourth quarter of 2022), Arizona (down from 63.4% to 59.9%), Nevada (down from 55.8% to 52.3%), Washington (down from 61% to 58.5%) and Oregon (down from 55% to 53.2%). 

Conversely, the South had the biggest increase in the share of equity-rich homes during the fourth quarter. 

According to ATTOM, while the portion of mortgage homes considered seriously underwater remained historically low in the fourth quarter of 2022 in most of the nation, the largest increases were clustered in the West. The top increases were in Missouri (share of mortgaged homes that were seriously underwater up from 5.2% in the third quarter of 2022 to 7.1% in the fourth quarter), Hawaii (up from 1.5% to 2% ), Idaho (up from 1.9% to 2.2%), New Mexico (up from 2.7% to 3%) and Wyoming (up from 2.9% to 3.2%).

Among 8,721 U.S. zip codes that had at least 2,000 residential properties with mortgages in the fourth quarter of 2022, there were 3,887 (46%) where at least half the mortgaged properties were equity-rich. 

The Midwest and South again had the top 10 states with the highest shares of mortgages that were seriously underwater in the fourth quarter of 2022. The top five were Louisiana (10.6% seriously underwater), Missouri (7.1%); Mississippi (6.8%), Illinois (6.3%) and Iowa (6.2%). 

ATTOM further found that only about 234,400 homeowners were facing possible foreclosure in the fourth quarter of 2022, or just four-tenths of one percent of the 58.1 million outstanding mortgages in the U.S. Of those facing foreclosure, about 216,000—or 92%—had at least some equity built up in their homes. 

“Facing foreclosure is not nearly as impactful as it could be for the vast majority of homeowners because they have varying levels of financial cushion built up in their property,” Barber concluded. “That should help them either refinance mortgages, or if they have to sell, still generate a profit from all the recent price increases.”

Written by Kyle G. Horst; DSNews