‘Underwater Mortgages’ Trending Below Average


Underwater home mortgage, house for sale, real estate crisis concept, copy space | Image by Dejan Stanisavljevic, Shutterstock

“Underwater mortgages” in North Texas are trending up but remain minimal compared to the broader market.

When a property owner has negative equity in his home, the homeowner is considered to be “underwater” or “upside-down” on his mortgage. According to Investopedia, an underwater mortgage occurs when the market value of a property falls below the outstanding balance on the home loan.

Underwater mortgages in the Dallas-Plano-Irving region of North Texas rose to 1.37% in the fourth quarter of 2022, a slight 0.04% increase from a year earlier, according to local data from property analytics firm CoreLogic, as reported by the Dallas Business Journal. In terms of the Fort Worth-Arlington region, the share of borrowers with negative equity edged up to 1.31% from 1.23% at the end of 2021.

The share of underwater mortgages in Dallas rose to 1.4% in Q4 2022 from 1.3% in the last quarter of 2021, in line with the surrounding metros as well as the state’s negative equity rate of 1.5% to 1.6%, Selma Hepp, chief economist for CoreLogic told The Dallas Express.

Much of the home equity losses nationally in 2022 stemmed from falling demand in metros that experienced a surge in property values following the pandemic in 2019, CoreLogic said in its recent Homeowner Equity Insights Q4 2022 report.

Despite the recent increase in the number of negative equity properties, the share of U.S. properties underwater remains at a very low level – about 2.1% nationally, Hepp told The Dallas Express. For comparison, properties underwater reached a peak of 26% during the Great Recession, she said.

While equity gains contracted at the end of last year due to home price declines in some regions, most U.S. homeowners still had a robust store of home equity in their properties.

In Idaho, “where borrowers were the most vulnerable to losses,” the typical homeowner still had about “$250,000 in remaining home equity,” Hepp said in the report.

Idaho was just one of four U.S. states that had an annual home equity decrease in the final quarter of 2022, according to CoreLogic’s report. Home equity in Idaho decreased by $21,400; in Washington, it decreased by $18,900; in California, it decreased by $8,400; and in Utah, it decreased by $4,600.

“The new hot spots for equity declines are largely markets that have seen the most significant home price deceleration, including Boise, Idaho; the San Francisco Bay Area; cities in Utah; Phoenix and Austin, Texas,” Hepp said in the report.

“CoreLogic is currently forecasting a continued slowing of home price growth in 2023,” according to Hepp in her email to The Dallas Express. However, “home prices would have to fall some 40% if we are to see the same rate of underwater properties as we saw during the Great Recession.” Currently, “we are not likely to see that,” she said.

Still, if home prices rise by 5%, CoreLogic noted that roughly 145,000 homes would regain equity. However, on the flip side, if home prices decline by 5%, then about 215,000 properties would be categorized as underwater.

“There may be some additional slight increase in the share of negative equity homes over the next quarter or two, but home prices are expected to start increasing in the second half of the year, which will stabilize any further deterioration in home equity,” Hepp told The Dallas Express.

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