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Nearly 900,000 New Homeowners Now Owe More Than Their Homes Are Worth

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  //house-home.news-articles.net/content/2025/11/1 .. ers-now-owe-more-than-their-homes-are-worth.html
  Published in House and Home on Saturday, November 15th 2025 at 18:31 GMT by MarketWatch

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Nearly 900,000 New Homeowners Are Underwater on Their Mortgages – What It Means for the Housing Market

A new report from the Mortgage Bankers Association (MBA) and Freddie Mac’s Mortgage Market Survey has revealed that almost nine hundred thousand newly‑acquired homeowners—roughly 6.4 % of all first‑time buyers in the latest quarter—now owe more on their mortgages than the market value of their homes. The finding signals a troubling shift in the U.S. housing market, one that could foreshadow a broader slowdown and heightened risk of defaults.

The Numbers in Context

• 887,000 new homeowners are underwater in the most recent 12‑month period ending September 2023.
• This represents a 9 % increase over the previous quarter and is the highest count since the data series began in 2016.
• The share of new homeowners that are underwater has climbed from 5.6 % in the preceding quarter to 6.4 % today.
• In total, the U.S. houses about 2.1 million homeowners whose mortgage debt exceeds the value of their property—an increase of about 300,000 over the past year.

The article cites Freddie Mac’s Monthly Mortgage Market Survey as the primary source of the data, and the MBA’s own proprietary analysis. A chart in the piece (link to MBA graphic) illustrates a clear upward trend in the proportion of underwater new homeowners since the pandemic peak in 2020, when the number had dropped to a low of 842,000.

Why Are New Homeowners Underwater?

The article attributes the rise to several interrelated factors:

1. Persistently High Mortgage Rates
   - The Federal Reserve’s recent rate hikes have pushed the average 30‑year fixed mortgage rate from roughly 3.0 % in March 2022 to about 6.5 % today.
   - Higher borrowing costs mean buyers are taking on larger loans relative to the purchase price, often at the margin of affordability.

2. Stalled Home‑Price Growth
   - After a surge of 7.2 % in the S&P N‑2000 Home Price Index during 2021, home‑price appreciation has slowed to 2.3 % in 2023, according to Zillow data (link to Zillow article).
   - In many metro markets, the median home price has plateaued or even dipped, eroding the equity cushion that first‑time buyers previously enjoyed.

3. Supply Constraints & Rising Construction Costs
   - Building‑sector bottlenecks and rising raw‑material prices have kept supply tight, sustaining price pressure in some regions while limiting overall market fluidity.

4. Buyer Demographics & Financial Stress
   - Millennials and Gen Z first‑time buyers, who made up a majority of new purchases in 2023, tend to have less equity and higher debt-to-income ratios.
   - Many of these buyers are also juggling student‑loan debt and lower-than‑expected wages, reducing their buffer against price swings.

The Bigger Picture: How This Fits Into the Housing Cycle

The article situates the underwater trend within the broader housing cycle, noting that the ratio of underwater homeowners historically peaks around the end of a boom and tapers during a downturn. In 2021, after a pandemic‑era rally, the number of underwater homeowners dipped to a low of 1.4 million, but the current 2.1 million suggests a new wave of negative equity that may amplify risk.

• Risk of Default
  The MBA’s report warns that the current share of underwater owners is a leading indicator of potential future defaults. Historically, every 1 % increase in negative equity has correlated with a 0.4 % uptick in mortgage delinquency rates a year later.

• Impact on Secondary Markets
  Higher negative equity could affect the liquidity of mortgage‑backed securities. If borrowers default, the value of the underlying assets falls, potentially tightening credit supply for other borrowers.

• Housing Affordability Concerns
  The article points to a policy implication: if negative equity drives more owners to sell, it could spur a further slowdown in price appreciation, but could also spark a wave of distressed sales that depress prices even further.

Related Articles & Data Sources

The MarketWatch article we summarize contains several hyperlinks that enrich the story:

1. Freddie Mac Mortgage Market Survey – Detailed dataset on mortgage origination, rates, and borrower equity.
2. Mortgage Bankers Association “Underwater Homeowners” Report – MBA’s analysis and predictive modeling of default risk.
3. Zillow Home Price Index – Year‑over‑year price changes in key metro areas.
4. Federal Reserve’s Monetary Policy Summary – Background on recent rate hikes.
5. National Association of Realtors (NAR) Housing Market Trends – Complementary data on inventory and sales velocity.

These sources provide the underlying metrics that anchor the article’s claims and offer readers avenues to explore the raw data and methodology.

Takeaway

The headline number—almost 900,000 new homeowners underwater—may appear like a statistic, but it encapsulates a complex shift in the housing market. Rising rates, sluggish price growth, and the financial profile of new buyers are converging to create a sizable pool of homeowners who owe more than their homes are worth. For the market, this trend is a warning sign: it could lead to higher default rates, tighter credit conditions, and a broader slowdown in housing activity. For policymakers and lenders, it underscores the need for monitoring, risk‑adjusted lending standards, and potential interventions to protect vulnerable borrowers and maintain market stability.