Underwater Mortgages on the Rise in Key States
A troubling trend is emerging in the US housing market as a growing number of homeowners find themselves 'seriously underwater' on their mortgages. This term refers to properties where the outstanding loan balance is at least 25% more than the current market value of the home. According to a recent report by ATTOM, Louisiana, Kentucky, and Mississippi have registered the highest shares of such mortgages, putting many residents at a heightened risk of foreclosure.
The ATTOM report highlights that Louisiana leads with 11.3% of its mortgages classified as seriously underwater, a notable increase from last year. Kentucky and Mississippi follow closely, with significant portions of their homeowners also owing far more than their properties are worth. This situation often arises from declining home values or economic challenges that prevent owners from keeping up with payments.
Economic Factors Driving the Crisis
Several economic factors contribute to the high rates of underwater mortgages in these states. In Louisiana, home values have dropped by 6% since their peak in the summer of 2022, as reported by Redfin data. This decline exacerbates the financial strain on homeowners who may have purchased or refinanced at higher valuations.
Additionally, regional economic struggles play a role. The South and Midwest, where these three states are located, face unique challenges such as slower job growth and lower median incomes compared to other parts of the country. These conditions make it harder for residents to recover equity in their homes or manage mortgage payments, increasing foreclosure risks.
The ATTOM report also notes a national uptick, with 2.8% of all US loans now considered seriously underwater in the first quarter of 2025, up 0.4% from the previous quarter. While this percentage may seem small, it represents thousands of families facing potential loss of their homes.
Implications for Homeowners and the Market
For homeowners in Louisiana, Kentucky, and Mississippi, being underwater on a mortgage creates a precarious financial situation. Without significant improvements in home values or personal income, many may struggle to refinance or sell their properties without incurring substantial losses. Foreclosure looms as a real threat, disrupting lives and communities.
On a broader scale, this trend could signal underlying weaknesses in the housing market, particularly in regions already grappling with economic hardship. Policymakers and financial institutions may need to consider targeted interventions, such as loan modification programs or incentives for homebuyers, to stabilize these markets and prevent further deterioration.