Probability of Being Underwater on Your Mortgage

According to CoreLogic data, approximately 2% of mortgaged homeowners (about 1.1 million properties) have negative equity, meaning they owe more on their mortgage than their home is currently worth. This is a dramatic improvement from the peak of the housing crisis in 2012, when about 25% of mortgaged homeowners (12.8 million) were underwater.

Negative equity most commonly results from buying at or near market peaks, making minimal down payments, taking out home equity loans, or experiencing localized market declines. Properties purchased between 2005-2007 were most likely to experience negative equity. Currently, states with the highest negative equity rates include Louisiana, Mississippi, Illinois, and Iowa.

Being underwater on a mortgage limits homeowner mobility (since selling would require bringing money to the closing table), makes refinancing difficult, and can cause financial stress. However, as long as the homeowner can continue making payments, negative equity does not necessarily lead to foreclosure. Strategic default (choosing to stop paying on an underwater mortgage even when able to pay) was more common during the housing crisis but carries significant credit consequences. The strong housing market since 2020 has returned the vast majority of previously underwater homes to positive equity.