AUSTIN, Texas–In a scenario that will sound unfortunately familar to any veteran CU lenders, more Americans are underwater when it comes to their mortgages, but the problem is primarily concentrated in markets that in recent years become modern-day “boomtowns,” a new analysis has revealed.
Homeowners who are underwater—that is, they owe more on their mortgage than their homes are worth—are primarily concentrated in cities that got hot during the pandemic, such as Austin, Texas and Cape Coral, Fla.
As people flocked to those cities home values rose rapidly—as did the mortgages taken out on new homes—before then declining by as much as 20% in some places, according to a new Wall Street Journal report.
‘Real Consequences’
“Being underwater can have real consequences for, say, homeowners who want to sell,” the Journal analysis stated. “They might hold off if it also means writing a check for the remaining balance to the mortgage company.”
The report looked back on a scenario many in credit unions do not recall with any fondness, when during the financial crisis of 2008-09 many homeowners opted to walk away from their underwater homes and turned the keys over to their lender.
Today’s market is different, with the Journal noting, “there is little sign of it happening now” outside of certain markets.
‘Packed into Five Years’
The underwater borrowers in some markets comes at the same time Americans have record amounts of money in home equity.
Kara Ng, a senior economist at Zillow, told the Journal a typical decade’s worth of home-value growth was packed into just five years, starting in 2020, driven by a “perfect blend of low mortgage rates, high consumer savings and more people desiring larger spaces.”
Most U.S. markets saw strong price growth, but it was “turbocharged” in many Sunbelt cities, the Journal said, as remote workers relocated.
The report noted that today’s sellers who bought recently are less likely to come out ahead compared with those who bought before the pandemic, according to a Redfin analysis.
Growing Subset
But a growing subset of homeowners is underwater, particularly if they bought after prices had already risen. In April, the number of such homeowner surpassed half a million, the highest April reading in five years, Andy Walden, head of mortgage and housing market research at Intercontinental Exchange, told the Journal.
Among the cites feeling seeing a larger share of underwater homes are San Antonio and New Orleans, the company said, adding that even if mortgage rates decline in 2025, it likely won’t help people who are underwater.
