A variety of economic factors are influencing the share of seriously underwater mortgages, which is up slightly in most states and contributing to lower home equity.
The share of mortgaged properties considered seriously underwater rose in 35 states quarter over quarter and in 46 states year over year, according to the latest Home Equity and Underwater report from real estate data firm ATTOM.
A seriously underwater mortgage is defined as having a loan-to-value ratio of 125% or above, meaning the property owner owes at least 25% more than the estimated market value of the property.
After equity growth peaked in 2022, now 2.8% of mortgaged residential properties in the U.S. are considered seriously underwater in the third quarter of 2025, meaning the combined estimated balance of loans secured by the properties were at least 25% more than the properties’ estimated market value.
That was up from 2.7 % in the second quarter and 2.5% in the third quarter of 2024.
A seriously underwater mortgage is a red flag that the home could be on its way to foreclosure, as it can make more financial sense to walk away from a property that is underwater than to continue to pay off the loan.
“Rising shares of underwater homes are a warning sign, not a crisis yet, but they signal potential for slower price growth, more distressed sales, and greater risk if local economies weaken further,” says Hannah Jones, senior economic research analyst at Realtor.com®.
Why are seriously underwater mortgages on the rise?
There are many factors that can cause a homeowner to become seriously underwater on their mortgage.
“Falling home prices, stagnant property values, or purchasing with little down payment can reduce equity,” Rob Barber, CEO of ATTOM, tells Realtor.com. “Refinancing, taking on additional loans, or local economic declines can also push loan balances above market value, leaving homeowners owing more than their homes are worth.”
Markets with the largest annual increases in their proportion of seriously underwater homes were the District of Columbia (up from 3.3% in the third quarter of 2024 to 5.1% in the same quarter of 2025); Maryland (up from 2.4% to 3.5%); Louisiana (up from 10.1% to 11.2%); Georgia (up from 2.6% to 3.6%); and Oklahoma (up from 4.8% to 5.4%).
“These markets may be inching up due to a combination of rising homeownership costs, slower price appreciation, and affordability challenges that make it harder for some homeowners to build or maintain equity,” says Barber.
With three of the top five states in the South, it is clear that something is amiss.
“Southern states saw big price gains during the pandemic as buyers sought affordable homes and remote work expanded,” explains Jones. “Now, with higher mortgage rates and weaker affordability, those markets are more vulnerable to price declines. Even small drops can push recent buyers with little equity underwater.”
Then there is DC and Maryland. Typically equity-rich areas, these metros are now struggling with government furloughs and a massive mortgage fraud scheme.
“The region has been hit with two large-scale housing impacts,” says Doug Perry, a strategic financing adviser at Real Estate Bees and mortgage expert who is located in Bethesda, MD, a commuter suburb to DC.
“First is the massive real estate fraud scheme in Baltimore that ended up putting hundreds of millions of dollars of real estate in foreclosure. Second is the government shutdown.
“When people don’t have paychecks and are faced with potential layoffs, they don’t spend money and can’t pay their bills. Neither of these economic events are going to have an immediate turnaround and even when the government shutdown ends, the impacts will be felt for a long time.
“These are unusual times.”
Jones agrees. “Government furloughs and job uncertainty are also dampening demand and pushing prices down,” the analyst says.
States with the most underwater homes
The states with the largest shares of seriously underwater homes were Louisiana (11.2% seriously underwater); Mississippi (6.6%); Kentucky (6%); Arkansas (5.7%); and Iowa (5.6%).
Louisiana is faring the worst of the underwater states, with 21 of the 30 counties with the lowest proportions of equity-rich homes (defined as the property owner having at least 50% equity, meaning the home’s estimated worth is 50% or more than the outstanding loan).
As for hard-hit Florida, that state tops the markets with the largest year-over-year drops in their shares of equity-rich homes, with The Sunshine State down from 52.5% in the third quarter of 2024 to 46% in the same quarter of 2025.
But it doesn’t appear in the list of states with the most increase in seriously underwater mortgages. So what gives?
“While Florida has some of the nation’s worst foreclosure rates, that doesn’t necessarily mean homeowners there lack equity,” ATTOM tells Realtor.com.
District of Columbia
Yearly increase in share of seriously underwater mortgages: 1.8%
Median home list price: $589,450
Maryland
Yearly increase in share of seriously underwater mortgages: 1.1%
Median home list price: $443,950
Louisiana
Yearly increase in share of seriously underwater mortgages: 1.1%
Median home list price: $278,500
Georgia
Yearly increase in share of seriously underwater mortgages: 1%
Median home list price: $394,995
Oklahoma
Yearly increase in share of seriously underwater mortgages: 0.6%
Median home list price: $299,250
