Homeowner Equity Plunges to 4-Year Low as Underwater Mortgages Rise

Total homeowner equity in the U.S. continued its retreat through early 2026, hitting a four-year low as property values plateaued and mortgage rates remained stubbornly elevated.

Nationally, 43.3% of homes were considered equity rich (defined as the property owner having at least 50% equity, meaning the home's estimated worth is 50% or more than the outstanding loan) from January through March, down from 44.6% in the previous quarter, according to a new report from ATTOM, a provider of property data and real estate analytics.

It marks the lowest share of equity-rich homes since the fourth quarter of 2021.

"The two forces working against homeowner equity in Q1 2026 are the same ones that have defined this housing market cycle, namely elevated mortgage rates and cooling home prices," explains Realtor.com® senior economic research analyst Hannah Jones. "When rates stay high, fewer buyers can afford to purchase, which softens demand and puts downward pressure on home values. Lower values mean the equity cushion homeowners built up during the pandemic price boom gets thinner."

Conversely, the share of seriously underwater mortgaged homes—where the homeowner owes at least 25% more than the estimated market value of the property—rose to 3.2%, up from 3% in Q4 2025 and 2.8% at the start of 2025.

"Homeowners who purchased near the peak of the market with small down payments are most exposed when prices soften, because they had very little equity buffer to begin with," says Jones. "If the estimated value of their home falls while their loan balance stays largely fixed, they can slip into negative equity territory quickly."

Market red flags

A seriously underwater mortgage signals that the home could be headed for a foreclosure, as it stops making financial sense for the owner to continue making monthly payments on the loan.

"Homeowner equity remains relatively strong overall, but we’re seeing signs of moderation, says ATTOM CEO Rob Barber. "As mortgage rates have risen and home prices have cooled, the share of equity-rich homes has declined in most markets while the rate of seriously underwater properties is edging up across much of the country."

Jones agrees, saying that while the climbing negative equity rate has not reached crisis level yet, it should be watched closely.

"The overall rate remains low by historical standards, but the fact that seriously underwater rates rose in most states year over year signals that this is a broad national trend to keep an eye on," adds the analyst.

Equity-rich homeowners enjoy a significant advantage because they can leverage the ratio of mortgage-to-market value of their homes, allowing them to trade up to more expensive properties or take advantage of a home equity line of credit.

Rising risks in the South

The share of seriously underwater mortgages increased quarterly in 44 states and annually in 45, with Washington, DC, seeing upticks in both periods.

"The shift in DC is more likely tied to the significant contraction in federal employment and government spending that has weighed on the local economy," notes Jones. "DC's housing market is highly dependent on the federal workforce, and as that workforce has contracted, demand has softened and values have come under pressure in a market where many owners bought at elevated prices during the pandemic."

The South emerged as the epicenter of year-over-year negative equity growth, with DC in the lead (up from 3.8% to 5.3%), followed by Mississippi (up from 6.6% to 8%), Louisiana (up from 10.5% to 11.8%), Kentucky (up from 7.3% to 8.5%), and Oklahoma (up from 5.5% to 6.6%).

The states with the highest percentages of seriously underwater properties in the first quarter of 2026 were Louisiana (11.8%), Kentucky (8.5%), Mississippi (8%), Oklahoma (6.6%), and Arkansas (6.4%).

Louisiana homeowners fared particularly poorly at the start of the year; at the metro level, Baton Rouge stood out for having the lowest rate of equity-rich homes, at just 17.4%, while the city's rate of seriously underwater homes was the highest across the 107 metros analyzed by ATTOM, surging to 11.9%. 

"Louisiana and Mississippi have seen weaker income growth, lower home appreciation over time, and higher concentrations of buyers who historically purchased with minimal down payments," says Jones. "When prices plateau or dip even modestly, a large share of owners there have little cushion to absorb the change."

In contrast, California's most high-priced large metros dominated the rankings for equity-rich homes; San Jose boasted the highest rate of 65.2%, followed by Los Angeles at 59.3%, and San Diego in third with 58.2%. 

The share of equity-rich homes rose in just six states compared with the first quarter of 2025, led by Illinois (up from 31.5% to 33.5%); Alaska (up from 31.7% to 33.5%), South Dakota (up from 51.3% to 52.4%), North Dakota (up from 31.9% to 32.8%), New York (up from 54.1% to 54.4%), and Wisconsin (up from 49.3% to 49.5%).

While much of the country saw equity retreat, select markets remained resilient. Vermont continued to punch well above its weight with a nation-leading 85.7% of properties classified as equity-rich. New Hampshire followed at 58.1%, narrowly edging out Montana (57.7%), Rhode Island (57.2%), and Hawaii (55.8%) to round out the top five