Home price growth has been slowing across the U.S. and, as result, many homeowners are now starting to see their home equity decrease instead of increase for the first time since the pandemic.
It also means there has been an increase in the number of homeowners who are in negative equity. Still, negative equity rates are relatively low, as shown in ICE Mortgage Technology’s latest Mortgage Monitor Report.
The report shows that only about 1% of mortgage holders are underwater, representing a little over a half a million homeowners (538,000) nationwide.
Still, this is up from 339,000 at the same time last year.
Another 4.6% (2.5 million) have ‘limited’ equity, meaning they would fall underwater if local home prices declined by 10%.
That’s up from 3.7% at the same time last year, marking the highest volume since early 2020 before the sharp run-up in home prices.
While the number of homeowners underwater on their mortgage is still relatively low, it’s beginning to grow in some markets, especially among mortgage holders who purchased more recently, ICE says in the report.
Lower down payment products, such as FHA and VA loans, are the most likely to be underwater, with nearly 5% of VA mortgages and 2.6% of FHA loans currently in a negative equity position, the firm says.
When applying distressed discounts based on local market conditions using the ICE Home Price Index, roughly one in four seriously delinquent mortgages would be in a negative equity position if sold at a distressed (REO) discount including 42% and 30% of seriously delinquent VA and FHA loans respectively.
Meanwhile, negative equity rates are all but non-existent among folks that bought their homes in 2020 or prior, with 92% of underwater mortgages taken out in 2021 or later and >82% coming in 2022 or later.
“While the slowdown in home price growth may be easing affordability pressures, and negative equity volumes remain low, we’re beginning to see localized pockets of recent homebuyers becoming financially exposed,” says Andy Walden, head of mortgage and housing market research at ICE, in a statement. “Borrowers with minimal equity — particularly those who purchased recently — are often the first to be exposed when home prices soften. These early signs of stress highlight the importance of monitoring borrower-level risk as market conditions evolve.”
Meanwhile, ICE Home Price Dynamics is beginning to show the impact of softening home prices on equity positions in credit risk transfer (CRT) securitizations with the majority of CRT deals issued in 2023 and 2024 having seen modest upticks in negative equity rates in recent months.
“As figures from the July Mortgage Monitor bear out, national averages don’t tell the full story,” says Tim Bowler, president of ICE Mortgage Technology. “We’re seeing early signs of risk building within specific markets and within specific borrower populations, like borrowers with limited equity or who are behind on student loans. This is when proactive monitoring and data-driven risk management become essential. Identifying and engaging these borrowers early may prevent hardship later.”
Photo: Jakub Żerdzicki
