The proportion of seriously underwater properties, defined as when the mortgage balance exceeds a home's value by at least 25%, increased quarter over quarter in 48 states, according to a new report from real estate data provider Attom. The national underwater rate stands at 2.8% after the first quarter, up from 2.5% over the final three months of  2024.

Compared with first quarter 2024 data, however,  the number of states with a higher underwater share comes in at just 25. The proportion of seriously underwater homeowners has remained between 2% and 3% nationally since early 2023 and currently sits under half of its early 2020 pre-pandemic level of 6.6%. 

On the other side of the coin, the proportion of equity-rich homeowners, whose collateralized loan balances are under half of current property value, likewise retreated for the third quarter in a row to 46.2%, declining from 47.7% in late 2024. Forty-seven states reported decreases in the percentage of equity-rich owners over the winter, but 33 reported growth on a year-over-year basis.     

If history holds, though, first-quarter data may prove to be a temporary blip rather than a long-term cause for concern, Attom CEO Rob Barber advised. 

"In each of the two previous years, the first quarter marked the lowest point of the year before the proportion of equity-rich homes shot back up in the second quarter," Barber said. 

"Home equity rates are near their highest points in recent years," he added.

Still, the growth of underwater mortgages comes as home prices have declined in some regions to start 2025, while overall cost appreciation is also slowing. Many buyers say they struggle with the expense of homeownership after their initial purchase. 

Housing researchers also noted recent signs of rising borrower distress, particularly in later-stage delinquencies of some loan types where payments are late by more than 90 days. Efforts are underway to revise or remove some loss-mitigation measures introduced during the Covid-19 pandemic, many of which helped borrowers stay in homes and kept  home equity levels elevated.