Roughly 1.2 million U.S. homeowners, or 2.1%, were underwater on their mortgages as of the end of the first quarter, an increase of 17% compared with the first quarter of 2024, according to Cotality’s latest home equity report.
Negative equity has been rising on a quarterly basis since the second quarter of 2024, the firm says, as home price appreciation slows. Compared to the first quarter of 2024, the number of residential properties that fell into negative equity increased by 172,000 homes.
“Strong home price appreciation since the pandemic has ensured that U.S. homeowners with a mortgage saw a significant rise in their home equity, with annual gains averaging over $38,000 between 2020 and the end of 2022,” says Selma Hepp, chief economist for Cotality, in the report. “At the peak of home price gains, annual equity increases surged to as much as $55,000.”
“However, with price increases slowing considerably and appreciation remaining sluggish, home equity is unlikely to accumulate at the same pace as it did during the pandemic, or even pre-pandemic, when annual gains averaged about $11,000,” Hepp says. “In addition, recent declines also reflect that some homeowners are tapping into their equity to finance other activities.”
“Geographical differences are important here as the national average is being pulled down by weakening markets in the South — particularly in Texas and Florida — that are masking strong equity growth in the Northeast,” she adds. “However, given the weakening of prices in the South and affordability concerns for existing homeowners due to rising insurance and taxes, as well as the prevalence of natural disasters in those areas which can wipe out home equity, there are many areas in the South where we are likely to see increases in negative equity going forward.”
While 1.2 million residential homeowners, or 2.1% of homeowners with a mortgage, are in negative equity, many other homeowners — particularly in the Northeast — are benefitting from the continued rise in home prices and the resulting boost in equity, the firm says.
Year over year, New York and Boston saw average equity gains of $20,600 and $25,200, respectively.
However, on the national scale, homeowners lost an average of $4,200 in equity between the first quarter of 2024 and the first quarter of 2025. That’s a significant loss when compared to the $4,300 they gained year over year in the fourth quarter of 2023 to 2024, or the nearly $30,000 annual increase they saw in 2023 through the first quarter of 2024.
Photo: Kelly Sikkema