Share of ‘Equity-Rich’ Homeowners Drops to Lowest in 5 Years as Underwater Mortgages Rise

The share of "equity-rich" homeowners has fallen to its lowest level in five years, while the number of homeowners with "seriously underwater" mortgages is rising, according to a new report.

Both trends reflect housing market challenges, although homeowners overall remain in a better position than they were prior to 2020, and the shift primarily reflects a return to pre-pandemic norms.

Equity-rich homeowners—defined as those who own at least 50% of their home's value—accounted for 41.1% of mortgaged residential properties in the second quarter, down from 43.3% in the first quarter, according to real estate analytics firm ATTOM.

The latest statistic represents a drop of more than 6 percentage points from the second quarter of 2025, when 47.4% of homes were considered equity-rich. It marks the lowest share of equity-rich homes in five years.

While the overall number of equity-rich homes has dropped, 13 states saw increases in equity-rich homes quarter over quarter. And four states—North Dakota, South Dakota, Kentucky, and Wyoming—saw increases in the percentage of equity-rich homes year over year.

North Dakota is up 32.9% from 30.2%, South Dakota is up 53.6% from 52.1%, Kentucky is up 36.5% from 35.1%, and Wyoming is up 46.6% from 45.3%.

By contrast, a "seriously underwater" mortgage is defined as a mortgage in which debt exceeds a home's market value by 25% or more. Underwater mortgages often limit homeowners' mobility because they're unable to sell their home without taking a hit.

According to ATTOM research, 3.2% of properties in the second quarter of 2026 were considered seriously underwater, the same rate as the previous quarter, but up from 2.7% at the same time last year.

While those topline numbers are discouraging, ATTOM CEO Rob Barber stressed that "the rates of equity-rich and seriously underwater homes remain healthier than they were prior to 2020."

“However, both have been moving in less favorable directions over the past year, suggesting a trend worth watching," he says.

Where people are underwater

Eighteen states saw quarter-over-quarter increases in the number of seriously underwater homes, and 33 states and the District of Columbia saw year-over-year increases.

The states with the largest annual increases in seriously underwater homes were Minnesota, South Dakota, Iowa, Michigan, and the District of Columbia. The percentage of seriously underwater homes in Minnesota climbed an astounding 9.5%, from 2.6% a year ago to 12.1% in the second quarter.

Minneapolis topped the list of metro areas with the largest percentage of underwater homes, with 13.4% of homes seriously underwater.

On the bright side, several states experienced significant decreases in the percentage of seriously underwater homes, including Louisiana (from 11.9% to 10.3%); Kentucky (from 7% to 5.7%); North Dakota (from 5% to 4%); Oklahoma (from 5.6% to 4.7%); and New York (from 2% to 1.5%).

Why people are underwater

The experts that Realtor.com® spoke with agree that the vast majority of people carrying underwater mortgages weren't the ones who bought at the beginning of the COVID-19 pandemic or before it. Instead, it's buyers who bought between 2022 and 2024.

"The borrowers I’d watch more closely are people who purchased closer to the top of the market in 2022–25, when rates started increasing and averaged 6%-plus, especially with low down payments and in markets where values have since flattened or pulled back," says Nick Panize of Westgate Capital Ventures, a finance firm specializing in tailored debt and equity solutions for real estate investors.

"If the borrowers only put 3% to 5% down, it really doesn't take much of a price correction to wipe out your equity once transaction costs are factored in."

John Carter is the founder of NestCash, a real estate acquisition company that works with distressed sellers across 12 states. Carter and his team regularly field calls from underwater homeowners.

"The pandemic-era buyers who locked in 2% to 3% rates mostly aren't the ones reaching out. Their low payment is a cushion, and if they're not forced to move, they stay put," he says.

Instead, Carter says, people with extenuating circumstances often find themselves underwater.

"The people we hear from are the ones who have to sell regardless of their rate: inherited properties they can't afford to hold, divorces, job relocations, and owners hit by rising taxes and insurance. In Florida especially, insurance and tax escalation is pushing people underwater on the carrying cost even when they still have equity on paper. For those sellers, a low locked-in rate becomes a trap rather than a benefit, because they can't take it with them and can't sell at the price they'd need."

Additionally, many of those currently underwater took advantage of FHA and VA loans, which require as little as 3% down.

"The second pattern we see is thin-equity buyers from 2021–22 who put little down at peak prices. When a forced-sale trigger hits, they're the first to go underwater once agent commissions and repairs come out of a softening sale price."

Cameron Walker, a real estate expert and manager at Clever Real Estate, agrees, noting that buyers who purchased using FHA or VA loans, who didn't have to put much down, are now struggling.

"Buyers at the top of the market that bought with a low down payment are the ones that are going to be underwater. Buyers at the top of the market with a 20% or more down payment will still be OK with moderate price declines," he says.

"Those with the shorter purchasing period and a low down payment are the ones who are quickly affected by market adjustments," notes Cory Schuiteboer, the president and CEO of Best Interest Financial. "The borrower who purchased the same home as the previous owner with a 5% down payment loses more equity than the borrower who purchased the same home with a 20% down payment."

Panize cautions that "being underwater" shouldn't always cause panic.

"If the borrower has a fixed-rate mortgage, stable income, and can make the payment, they can simply continue owning the home," he says. "It becomes a much bigger problem when they need to sell, refinance, relocate, or experience some type of financial hardship. That's when the lack of equity really starts to matter."