More than 1.1 million U.S. homeowners ended 2025 owing more on their mortgages than their homes were worth, the highest tally since early 2018. That does not mean the country is heading into a replay of the last housing crash. It does mean the easy-equity era that defined much of the pandemic housing boom has faded in a growing number of markets, especially for buyers who put little money down and purchased after prices had already surged. The pressure is concentrated among recent borrowers, not the market as a whole. That distinction matters. National home equity levels are still historically strong, but the borrowers who bought late in the run-up, particularly with FHA and VA loans, are finding that even modest price declines can erase a thin equity cushion. In some Southern markets, the problem is no longer marginal. It is becoming a real brake on mobility, refinancing, and household financial flexibility.
What the headline really means
Being underwater means a homeowner owes more on the mortgage than the property would likely sell for today. According to ICE Mortgage Technology’s February 2026 Mortgage Monitor, more than 1.1 million borrowers ended 2025 in that position, or about 2.1% of mortgage holders. That was the highest level since early 2018 and a sharp jump from the start of 2025, when the figure stood at roughly 696,000. That is a broader measure than ATTOM’s “seriously underwater” category, which refers to homes where the combined loan balance is at least 25% above the home’s estimated market value. In its fourth-quarter 2025 home equity report, ATTOM found that 3.0% of mortgaged homes fell into that more severe bucket, up from 2.8% in the prior quarter and 2.5% a year earlier. The two datasets are not interchangeable, but together they show the same broad pattern: negative equity is rising again, even if it remains far below crisis-era extremes.
Why recent buyers are taking the hit
The homeowners at greatest risk are the ones who bought after values had already run up and did so with low down payments. That is why the issue is heavily concentrated in loans originated in 2022 or later. ICE said the negative equity problem is especially pronounced among FHA and VA borrowers, who often enter with smaller equity buffers. When prices flatten or slip, those borrowers have less room for error. That helps explain why the damage is not centered in the Northeast, where prices have held up better, but in parts of the South and West that overheated during the pandemic migration boom. In its July 2025 mortgage report, ICE pointed to places such as Cape Coral, Florida, and Austin, Texas, where large shares of recent-vintage loans had already slipped underwater as prices softened. By early 2026, the company said several Southern markets had more than one in 10 mortgaged homes underwater. The pattern lines up with what other housing data providers have been seeing. CoreLogic’s homeowner equity report for the fourth quarter of 2024 showed 1.1 million homes in negative equity at that point, equal to 2.0% of mortgaged properties, with Florida among the areas posting some of the largest equity losses. That was before 2025’s weak price growth made the picture worse for recent buyers.
Home prices did not crash, but they did stop rescuing people
That is what makes this cycle different from 2008. The market has not seen a national collapse in prices. Instead, the rescue mechanism simply weakened. ICE said U.S. home prices rose just 0.6% in 2025, the slowest full-year growth since 2011. In a market where appreciation is barely moving nationally and falling in some local pockets, borrowers who were counting on rising values to build equity quickly no longer have that tailwind. For years, even stretched buyers often got bailed out by price appreciation. A home bought with 3% down could look much safer a year later if local prices jumped 10% or 15%. That math has changed. In many markets, prices have flattened. In others, builders have offered incentives or cut prices to move inventory, which has pressured resale values nearby. Rising property taxes and insurance costs in states such as Florida and Texas have also made some areas less appealing to buyers, further limiting price support. That means households do not need a dramatic decline in value to wind up trapped. A small correction can be enough.
Why this matters beyond the housing market
The immediate consequence of an underwater mortgage is not always delinquency. Often it is immobility. A homeowner who needs to move for work, divorce, family care, or school may be unable to sell without bringing cash to closing. Refinancing is generally out of reach. Renting the home out may not cover the payment. The result is a household that is technically current on the mortgage but financially boxed in. That kind of lock-in has broader economic consequences. Research published in the Journal of Financial Economics found that rising mortgage rates reduced mobility for households with mortgages in 2022 and 2023 by 16%. Negative equity can intensify that effect, because it removes the option to sell without taking a loss. In practical terms, that can mean fewer job moves, longer commutes, delayed household formation, and less turnover in local housing inventory. There is also a quieter consumer effect. Owners who feel trapped tend to defer nonessential renovations, hold back discretionary spending, and prioritize liquidity over longer-term financial goals. For younger households, that can delay retirement saving or the ability to upgrade to a different home later on.
Why this still is not a 2008-style meltdown
Even with the recent increase, the national picture looks much sturdier than it did before the foreclosure crisis. ATTOM said 44.6% of mortgaged homes were equity-rich at the end of the fourth quarter of 2025, meaning the loan balance was no more than half the home’s estimated value. The share of seriously underwater loans was still just 3.0%, near historic lows by long-run standards. Loan quality is also better than it was in the run-up to the last crash. Most borrowers have fixed-rate mortgages, and many locked in low rates before borrowing costs surged. That matters because payment shock, not just negative equity, is what tends to turn a housing slowdown into a foreclosure wave. A borrower who is underwater but can comfortably afford the monthly payment is much less likely to default than one facing a reset or unaffordable payment jump. That is why the better framing is not “housing collapse.” It is “localized vulnerability.” The danger rises if job losses hit markets where negative equity is already building. In those places, a forced sale can turn a paper problem into a real one very quickly.
What homeowners should watch now
For homeowners already underwater, the most important variable is time. If they can continue making payments and do not need to move soon, modest home-price gains over several years may repair the balance sheet. If they may need to relocate, the situation becomes more urgent, especially in markets where inventory is rising and comparable sale prices are still under pressure. The bigger takeaway is that the post-pandemic housing market is no longer rewarding every purchase with automatic equity growth. The more than 1.1 million borrowers now underwater are not just a statistic. They are evidence that the housing market has split into two realities: one where long-time owners still sit on large gains, and another where late-cycle buyers are discovering how quickly thin equity can disappear when price growth stalls. That does not make a national crash inevitable. It does make the margin for error a lot smaller than it looked a few years ago.
Paul Anderson is a finance writer and editor at The Financial Wire. He has spent seven years writing about investment strategies and the global economy for digital publications across the US and UK. His work focuses on making sense of economic policy, cost-of-living issues, and the stories that affect everyday Americans.
