As U.S. home prices fall, an alarming number of buyers are underwater

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Surging mortgage rates aren’t just raising the cost of purchasing a new home. An alarming number of recent homebuyers have discovered they already owe more on their property than it’s worth, according to a new analysis.

Some 250,000 people who took out a mortgage this year to buy a home are now underwater, meaning they owe more on their loan than the home is worth, Black Knight, a mortgage software provider, found. Another million have less than 10% equity.

Those unlucky homebuyers got caught in the crunch between historically high housing prices and rapidly rising mortgage rates, which in recent months have caused real estate values to slide.

While the portion of underwater mortgages is still historically low, “a clear bifurcation of risk has emerged between mortgaged homes purchased relatively recently versus those bought early in or before the pandemic,” Black Knight said.

All told, 8% of mortgages taken out this year are underwater — about one in 12 homes purchased in 2022.

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