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Underwater Mortgages on the Decline as Home Prices Rebound

While the housing market continues to moderate, ATTOM has released its Q2 2023 U.S. Home Equity & Underwater Report, which shows that 49% of mortgaged residential properties nationwide were considered equity-rich in Q2.

The share of mortgaged homes that were equity-rich in Q2 of 2023 increased from 47% in Q1 of 2023 to the highest point in at least four years. With home prices rebounding across the U.S., the report found that the level of equity-rich mortgage payers went up from Q1 of 2023 to Q2 of 2023 in 45 of the nation’s 50 states.

The gains followed two straight quarterly drop-offs caused by a temporary slowdown in the U.S. housing market that had threatened to end a decade-long run of price and equity growth. The second-quarter upturn marked another sign of how the market shift has helped homeowners, as home-seller profits also spiked.

While equity-rich levels rose in Q2, the report also shows that less than 3% of mortgaged homes in the U.S., or one in 36, were considered seriously underwater in Q2 of 2023. That meant they had a combined estimated balance of loans secured by the property of at least 25% more than the property’s estimated market value.

New data showed just 2.8% of mortgaged-homes were seriously underwater in Q2 of this year, also the lowest point since at least 2019. The latest figure was down from 3% in the prior quarter and 2.9 in Q2 of 2022.

“The second-quarter market revival bestowed immediate benefits on homeowners around the nation in the form of better profits for sellers and rising equity for those staying put. Equity levels were high even during the recent downturn, and now they are going back up and better than ever,” said Rob Barber, CEO for ATTOM. “It is well worth nothing that the market remains in flux and the recent improvement could easily be temporary."

Equity for U.S. homeowners improved in Q2 as prices for single-family homes and condos nationwide rose throughout most of the country, reversing a market slowdown that had run from the middle of last year to the early part of this year. Nationwide, the median home value jumped 10% in Q2 to yet another all-time high of $350,000, after dropping 7% over the prior three quarters.

The rebound came amid multiple factors that combined to put more financial resources in the hands of house hunters during a time of rising demand and tight housing inventory.

Largest increases in equity-rich share of mortgages spread across Midwest

The portion of mortgages that were equity-rich grew in most states around the U.S. from Q1 of 2023 to Q2 of 2023, commonly by up to four percentage points. The biggest gains came in the Midwest region, led by Wisconsin (portion of mortgages homes considered equity-rich rose from 41.6% in Q1 of 2023 to 47.1% in Q2 of 2023), Michigan (up from 42.5% to 47.7%), South Dakota (up from 41.4% to 46.4%), Ohio (up from 36.7% to 41.3%), and New Jersey (up from 38.9% to 43%).

At the other end of the scale, the South and West regions had the only states where the equity-rich share of mortgaged homes decreased from the first quarter to the second quarter of this year. They were Nevada (down from 49% to 46.8%), Louisiana (down from 24.1% to 23%), Arizona (down from 56.4% to 55.3%), Florida (down from 61% to 60.4%), and Utah (down from 58.1% to 57.8%).

Largest decreases in seriously underwater mortgages also in Midwest

The portion of mortgaged homes considered seriously underwater also dipped and remained historically low during Q2 of 2023 in most of the nation. The rate declined in 37 states, with the biggest decreases clustered in the Midwest—a region that has some of the highest levels of seriously underwater mortgages.

The improvements were led by Missouri (share of mortgaged homes that were seriously underwater down from 6.4% in Q1 of 2023 to 4.8% in Q2 of 2023), Illinois (down from 6.4% to 5.1%), South Dakota (down from 4.8% to 4%), Kansas (down from 3.7% to 3%), and Ohio (down from 5% to 4.3%).

States where the percentage of seriously underwater homes increased the most from the first to the second quarter of this year were led by Indiana (up from 3.3% to 8.1%), Hawaii (up from 2% to 3.6%), Maine (up from 2.5% to 2.7%), Mississippi (up from 5.6% to 5.8%), and Utah (up from 1.7% to 1.9%).

Highest levels of equity-rich homeowners still in the West

The West continued to have the highest levels of equity-rich mortgaged properties around the U.S., with six of the top 10 states in the second quarter of 2023.

Those with the highest portions where mortgaged homes were equity-rich:

  1. Vermont (77.5%)
  2. California (63.3%)
  3. Montana (60.9%)
  4. Florida (60.4%)
  5. Idaho (59.4%)

Nine of the 10 states with the lowest percentages of equity-rich properties in Q2 of 2023 were in the Midwest and South.

The smallest portions were in:

  1. Louisiana (23%)
  2. Alaska (29.2)
  3. Illinois (29.5%)
  4. West Virginia (30%)
  5. North Dakota (31.3%)

All but one of the top 20 were in those regions during Q2 of 2023, led by San Jose, CA (76.3%); Los Angeles, CA (69.3%); San Francisco, CA (69%); San Diego, CA (68.8%); and Sarasota-Bradenton, FL (66.6%). The leader in the Northeast region again was Portland, ME (60.7%), while the top metro in the Midwest continued to be Grand Rapids, MI (54.7%).

The 10 metro areas with the lowest percentages of equity-rich properties in Q2 of 2023 were again in the Midwest and South. The smallest levels were in Baton Rouge, LA (19.3%); Jackson, MS (26.6%); Little Rock, AR (29.2%); Virginia Beach, VA (29.7%); and New Orleans (31.7%).

Top equity-rich counties clustered in the Northeast and West

Among 1,712 counties that had at least 2,500 homes with mortgages in Q2 of 2023, 14 of the top 20 equity-rich locations were found in the Northeast and West regions.

Counties with the highest share of equity-rich properties were Chittenden County, VT (85.6%); Nantucket County, MA (83.7%); Dukes County, MA (82.7%); Manistee County, MI (80.6%); and Washington County, VT (79%).

Counties with the smallest share of equity-rich homes in Q2 of 2023 were Vernon Parish (Leesville), LA (8.2%); Lea County (Lovington), NM (10.1%); Beauregard Parish, LA (10.7%); Iberville Parish, LA (12.4%); and Geary County, KS (13.7%).

"Lots of changing forces are at work affecting whether boom times are really back, especially amid a recent increase in mortgage rates," said Barber. "But with the 2023 peak buying season still underway, it seems that homeowners can reasonably expect their household balance sheets to grow a bit more in the near future.”

To read the full report, including more data, charts, and methodology, click here.

About Author: Demetria Lester

Demetria C. Lester is a reporter for DS News and MReport magazines with more than eight years of writing experience. She has served as content coordinator and copy editor for the Los Angeles Daily News and the Orange County Register, in addition to 11 other Southern California publications. A former editor-in-chief at Northlake College and staff writer at her alma mater, the University of Texas at Arlington, she has covered events such as the Byron Nelson and Pac-12 Conferences, progressing into her freelance work with the Dallas Wings and D Magazine. Currently located in Dallas, Texas, Lester is an avid jazz lover and likes to read. She can be reached at [email protected].

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