More than 1 million homeowners are underwater on their mortgage - a 7-year-high. Here's what experts advise they do.

MW More than 1 million homeowners are underwater on their mortgage - a 7-year-high. Here's what experts advise they do.

By Aarthi Swaminathan

Between the start and end of 2025, there was a 60% jump in the number of homeowners in a negative equity position

One in 10 homeowners were underwater on their mortgage in 2025 in some cities in Florida, new data shows.

About 1.1 million American homeowners were underwater on their mortgages at the end of last year as home prices stalled, signaling a deepening crisis within the housing market.

That figure represents 2.1% of all mortgage borrowers in the U.S. Though the share may seem small in the context of the overall market, it's also the largest since early 2018 and is also up nearly 60% from 696,000 at the start of 2025, making it a significant jump.

A homeowner is considered to be underwater on their mortgage when they owe more to their lender than what their home is worth - a position also referred to as negative equity.

People in this situation would have to take a financial hit if they sold their house. As such, the rising share of underwater homeowners could mean less for-sale inventory for buyers to choose from.

The increase in underwater homeowners comes as home sales continue to stagnate while the housing market remains unaffordable to most Americans. Home price increases are also slowing down as buyer demand remains weak. While slowing prices are a boon to buyers, they also have an adverse effect on current homeowners and their home values.

In addition to the 1.1 million people already underwater, an additional 3.2 million borrowers, or 7.9% of the overall population, have less than 10% equity in their home, according to the data released by Intercontinental Exchange $(ICE)$ on Monday.

"This is somewhat alarming, but not exactly surprising," Joel Berner, a senior economist at Realtor.com, told MarketWatch. "Home values are falling in some areas and ... down payments have been low in recent years among new buyers."

Plus, "recent homeowners have not started with high levels of equity in their homes, so even small drops in value can lead to this result," Berner added.

(Realtor.com is operated by News Corp subsidiary Move Inc.; MarketWatch publisher Dow Jones is also a subsidiary of News Corp.)

Why 1.1 million mortgages are underwater

Home values in the Sun Belt, which spans the Southern and Southwest portions of the U.S., have dropped over the past year, which has impacted how much equity homeowners in those cities have.

Nationally, home prices rose by 0.6% in 2025, Intercontinental Exchange said, which was the smallest gain since 2011. Cape Coral, Fla., saw the biggest drop in home prices in 2025, followed by North Port, Fla., and Austin, Texas.

The average home in Cape Coral was valued at about $335,000 as of Dec. 31, according to Zillow (Z) data, down 10.2% from the previous year.

The three markets where underwater mortgages were most common were Lakeland, Fla., Cape Coral, Fla., and Austin, Texas.

In Lakeland, nearly 11% of homes that carry a mortgage were underwater, according to Intercontinental Exchange. In other words, more than 1 in 10 homeowners in Lakeland owed more on their mortgage than their home was worth at the end of 2025.

Here are the top 10 metro areas with the biggest shares of underwater mortgages:

   Metro area               Share of mortgaged homes that are underwater 
   Lakeland, Fla.           10.83% 
   Cape Coral, Fla.         10.14% 
   Austin, Texas            9.20% 
   San Antonio, Texas       8.81% 
   Jacksonville, Fla.       6.34% 
   North Port, Fla.         6.04% 
   Colorado Springs, Colo.  5.57% 
   Tampa, Fla.              5.39% 
   Baton Rouge, La.         3.76% 
   Deltona, Fla.            3.71% 

Clear divide between recent homeowners and those who bought before 2022

Despite this, homeowners at large still have considerable equity in their homes.

Coming into 2026, homeowners in the U.S. held nearly $17 trillion in equity overall, the Intercontinental Exchange report said, with just under $11 trillion considered "tappable" - meaning that homeowners can borrow that amount against their property's value while still maintaining a 20% equity cushion.

But there is a clear divide between those who bought before and after 2022.

On one side are homeowners who bought before 2022, who are "benefiting from low rates and rapid price appreciation," the report noted. One the other are people "who bought in 2023 or later at the peak of both rates and prices, as well as renters still waiting to enter the market."

Underwater mortgages were also less common in the Midwest, the Northeast and the West Coast.

Vulnerable loans

First-time home buyers and military veterans were more likely to be underwater on their mortgage, Intercontinental Exchange's data showed, as they often use loans that allow for low down-payment amounts.

Federal Housing Administration-backed loans allow buyers to put down as little as 3.5% of the home's sale price down. Veterans Affairs-backed loans allow buyers to get a mortgage with no money down.

Coming into 2026, 9.6% of VA-backed loans were underwater, and 5.7% of FHA-backed loans were underwater, the data showed.

Of mortgages that were originated in 2024, more than a quarter of VA borrowers and nearly 17% of FHA borrowers owed more than their home's current value, per the data.

How underwater mortgages can impact personal finances

The rising share of underwater mortgages doesn't mean that people are about to lose their homes. Most of these homeowners may be unaffected if they stay put in their homes and home prices recover.

"Being underwater on your mortgage doesn't necessarily carry long-term negative effects, but it is a financial setback," Stephen Kates, a certified financial planner and a financial analyst at Bankrate, told MarketWatch. "Any equity you had built from a down payment or prior mortgage payments is gone. That equity could be regained if the home appreciates in value over time."

On the other hand, if these homeowners were to lose their job or face some other financial difficulties and had to sell their home, they would lose money.

A homeowner who is selling a property while being underwater would need to "come to a closing with cash, which is often very difficult for homeowners who are underwater," Bennett Pardue, a certified financial planner with New Canaan Group in alliance with Equitable Advisors, told MarketWatch.

Plus, the homeowner may have to do a short sale, meaning they sell the home for less than what they owe on their mortgage with the lender's approval. "This comes with serious impacts to your credit," Pardue said. "It's also possible to give the home back to the lender and walk away, but this also comes with real long-term credit issues."

The data on the rise in underwater homeowners also bring some bad news for prospective buyers: A rising number of underwater mortgages could lead to a dip in for-sale listings, Realtor.com's Berner noted.

"Many homeowners may be reluctant to sell their homes in the near future, instead opting to wait and hope that their home values turn around and they get back in the black," he explained. For that reason, "for now, we might see a depressed level of newly listed homes."

-Aarthi Swaminathan

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February 09, 2026 16:20 ET (21:20 GMT)

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