The number of underwater homes in the U.S. is rapidly growing.
For the first time since 2021, the number of homes where loan balances sit at least 25 percent higher than a property’s estimated market value passed the 2 million mark. The figure represents a 15 percent year-over-year increase, according to a new report from real estate analytics firm Attom.
Across the country, 3.2 percent of homes were considered negative-equity in the first quarter of the year, up from 2.8 percent a year ago.
Attom CEO Rob Barber attributed the surge, which impacted more than 40 states, to a slowing home-price growth amid a higher-rate housing market, which reduced equity gains for some homeowners.
The problem spreads into the nation’s largest economic centers. Whereas a year ago, Illinois was the only state with more than 100,000 seriously underwater properties, in the first three months of 2026, four states reached that threshold: California (118,237), Florida (113,813), Texas (111,471), and Illinois (105,590). At the county level, Cook County (51,163), Philadelphia (25,528), and Los Angeles (24,686) led the way.
In Texas, this surge has already contributed to a dramatic uptick in foreclosure rates: in April, Austin saw a 199 percent year-over-years spike — higher than any other city in the country. And Florida’s Jacksonville had the highest foreclosure rate among metropolitan statistical areas with at least 1 million residents — with 1 of every 1,691 properties having some type of foreclosure filing.
The surge in Florida and Texas is no surprise, because a high percentage of borrowers in these states have FHA loans with a 3.5% down payment, said Rick Sharga, a residential mortgage expert who founded the advisory firm CJ Patrick Company.
“So an FHA borrower in a market like Austin, where prices are down 6 percent from last year, or Cape Coral in Florida, where prices have declined 7 percent, are likely to be underwater on their loan,” he said.
Southern states — and Gulf States known for exorbitant home insurance premiums, in particular — tend to have the highest share of distressed homes compared to all properties with loans.
In the first three months of 2026, Louisiana led the nation at 11.3 percent, followed by Mississippi (7.5 percent), Kentucky (5.7 percent), Oklahoma (5.5 percent), and Arkansas (5.43 percent). Louisiana, Mississippi, along with the District of Columbia saw the largest share increases over the past year.
Louisiana also houses the top eight of the nations’ counties with the highest rates of seriously underwater loans led by Ouachita Parish (17.4 percent), Calcasieu Parish (17.1 percent), and Tangipahoa Parish (15 percent).
In twelve months, the situation improved in only four states: North Dakota (share went down from 4.8 percent to 4.3 percent), South Dakota (3.4 percent to 3 percent), South Carolina (3.8 percent to 3.6 percent) and Wyoming (2.5 percent to 2.4 percent).
However, industry experts advise against panic.
“The likelihood is that this shouldn’t become a bigger issue,” said Sharga. “It’s mostly limited to a relatively small subset of homeowners; remember that two-thirds of the 300 largest metro areas saw prices go up. Home values historically always recover and go up over time.”