America's Housing Market Shows Fresh Warning Signals
New cautionary indicators are emerging in the United States housing sector, with an increasing proportion of homeowners finding themselves trapped in properties worth less than their outstanding mortgage debt. Recent figures from ATTOM demonstrate that the percentage of homeowners in this precarious situation edged upward at the close of 2025, interrupting several years of consistent improvement.
Rising Negative Equity Across the Nation
During the final quarter of 2025, approximately 3 percent of mortgaged homes were classified as 'seriously underwater' by analysts. This term indicates the owner owes at least 25 percent more than the current market value of the home. This represents an increase from 2.5 percent recorded during the same period the previous year. Although this figure remains low when compared to historical benchmarks, it signifies a definite reversal following years of positive momentum.
In certain states, the situation is considerably more severe, approaching nearly one in ten homeowners. Essentially, these property owners would be unable to sell without contributing thousands, or even tens of thousands, of dollars in cash at the closing table to cover the shortfall.
'This development is somewhat alarming, though not entirely unexpected,' commented Joel Berner, a senior economist at Realtor.com. 'We are observing declining home values in specific regions, coupled with relatively low down payments made by new buyers in recent years.'
Berner further explained that numerous recent homeowners entered the market with minimal equity. Consequently, even slight decreases in property values can rapidly thrust them into negative equity territory.
Supporting Data Confirms the Trend
Separate information from Intercontinental Exchange (ICE) corroborates this emerging pattern. By the end of 2025, 1.1 million borrowers, equating to 2.1 percent, owed more than their homes were worth. This constitutes the largest proportion since early 2018 and a significant rise from 696,000 borrowers at the start of the year.
Additionally, a further 3.2 million borrowers, representing 7.9 percent of mortgage holders, possess less than 10 percent equity in their properties. This leaves them especially susceptible to minor price reductions or employment disruptions.
Geographic Disparities in Negative Equity
ATTOM analysts discovered that the burden is not uniformly distributed across the country. Southern and Midwestern states predominantly occupy the highest rankings, with Louisiana reporting the most substantial share by a considerable margin.
Louisiana leads the nation, with 10.7 percent of mortgaged homes seriously underwater, despite a minor quarterly improvement. Mississippi follows at 8.3 percent, showing sharp increases both quarterly and annually. Kentucky occupies third place, with 7.9 percent of properties underwater, also registering notable yearly growth.
Iowa and Arkansas complete the top five, each with rates surpassing 5.5 percent. Several other central US states, including Oklahoma, Kansas, Illinois, Missouri, and West Virginia, reported rates between 4 and 5.5 percent, significantly above the national average.
At a local level, counties with the highest concentrations of underwater homes are frequently rural or situated in regions confronting economic challenges, particularly those reliant on energy, manufacturing, or agricultural sectors.
Regions with Lower Risk Profiles
Conversely, much of the Northeast and sections of the West Coast remain relatively protected. Vermont possesses the lowest share of underwater homes nationally at merely 0.65 percent. Rhode Island, New Hampshire, Massachusetts, California, and New Jersey all reported rates near or below 1.7 percent.
Large states such as New York, Hawaii, and Nevada also remained under 2 percent, despite gradual year-over-year increases. However, even within these lower-risk markets, the proportion of seriously underwater homes generally rose compared to 2024, highlighting the widespread, though still moderate, nature of the shift.
Context and Future Outlook
This recent uptick follows several years of declining negative equity, propelled by robust home-price appreciation earlier in the decade and stricter mortgage underwriting standards. While the overall increase remains limited, it suggests that slower price growth and localized economic pressures are starting to impact homeowner equity in specific areas.
Nevertheless, serious negative equity remains substantially below the levels witnessed during the housing crisis of the late 2000s, when underwater mortgages were prevalent across much of the nation. Housing analysts stress that as long as employment stays stable and lending standards remain conservative, a broad resurgence of negative equity is improbable.
However, continued vigilance will be essential, particularly in states and counties already displaying elevated risk indicators. Monitoring these trends closely will be critical for understanding the evolving landscape of the American housing market.
