Trouble for Housing Market as Underwater Mortgages Rise: Crash Alert? – Norada Real Estate Investments

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The U.S. housing market has been on a rollercoaster ride in recent years. Skyrocketing home prices, bidding wars, and a sense of urgency became commonplace. But with recent signs of a cooldown, whispers of a potential crash have begun to circulate. Let’s dissect the data from ATTOM, a leading real estate data provider, to gain a clearer picture of the current market’s health.

Home Equity Softening, Not Disappearing

The report highlights a slight decrease in the percentage of homes considered “equity-rich,” where the loan value is less than half the estimated market value. This might trigger some alarm, but it’s crucial to recognize the context. The decline is gradual, with a mere drop from 46.1% to 45.8% in the last quarter. This signifies that homeowners, by and large, still hold a healthy level of equity in their properties. It’s important to remember the significant equity gains accrued during the housing boom. Even with a slight decline, most homeowners are likely sitting on a comfortable financial cushion.

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A Tale of Two Markets: Regional Variations

The data paints a nuanced picture across the vast American geography. While some Southern states, like Kentucky and South Carolina, experienced a steeper decline in equity-rich homes, others in the Midwest and West, such as South Dakota and Hawaii, witnessed a slight rise. This regional variation underscores the complexity of the housing market and the need to avoid sweeping generalizations. Local factors like job markets, industry presence, and the pace of new construction can significantly influence housing trends within a particular state or even a metropolitan area.

Underwater Mortgages Remain a Distant Threat

A key indicator of a housing market teetering on collapse is a surge in “seriously underwater” mortgages, where the loan value significantly exceeds the market value. Thankfully, the data reveals minimal growth in this category, rising from 2.6% to 2.7%. This miniscule increase pales in comparison to the staggering numbers witnessed during the 2008 housing crisis, offering a sigh of relief for homeowners. The strict lending standards implemented after the crisis continue to act as a safeguard, preventing borrowers from taking on excessive debt they can’t manage.

Housing Market Shift, Not Market Crash

Experts like Rob Barber, CEO of ATTOM, suggest that the decline in equity reflects a market slowdown rather than a full-blown crash. Rising interest rates, which have climbed back above 7% for a 30-year loan, are likely culprits. Additionally, a flattening out or slight dip in home prices, compared to the breakneck growth experienced in recent years, can also contribute to a decrease in equity. However, the market isn’t without its countervailing forces. Tight inventory, with a scarcity of homes available for purchase, and a strong investor market could act as buffers, preventing a significant price drop.

Looking Beyond the Headlines: Broader Economic Factors

While the ATTOM data offers valuable insights, a comprehensive understanding of the housing market requires considering the broader economic landscape. Job growth, consumer confidence, and wage increases all play a crucial role in shaping housing affordability and buyer demand. A healthy economy with consistent job growth fosters a secure environment for potential homebuyers, allowing them to confidently enter the market. Conversely, economic downturns can lead to job losses and wage stagnation, making homeownership a distant dream for many.

The Role of Government Policy

Government policies can also significantly influence the housing market. Measures aimed at increasing housing supply, such as streamlining permitting processes or offering incentives for builders, can help alleviate inventory shortages and make homes more accessible. Additionally, programs that assist first-time homebuyers with down payments or closing costs can make homeownership a more attainable goal.

Spring Buying Season: A Potential Tipping Point?

The upcoming spring buying season holds immense significance. Traditionally a period of heightened activity, it can significantly influence the market’s direction. If it ignites a surge in activity, fueled by pent-up demand or a dip in mortgage rates, it could propel prices back up. Conversely, if high mortgage rates persist and affordability concerns continue to dampen buyer enthusiasm, the market might settle into a period of stability with a more balanced power dynamic between buyers and sellers.

By scrutinizing the data, we can conclude that the housing market is currently undergoing a period of transition, not teetering on the edge of a crash or collapse. While homeowners might see their equity levels stabilize or even dip slightly, a major crash seems like a remote possibility. The strong financial position of most homeowners, combined with the safeguards in place to prevent excessive borrowing, provide a layer of security. The coming months will be particularly telling, with the spring buying season acting as a bellwether for future trends.

A robust economy with consistent job growth fosters a secure environment for potential homebuyers. Conversely, economic downturns can lead to job losses and wage stagnation, hindering affordability and buyer demand. Monitoring these broader economic indicators will be crucial in gauging the overall health of the housing market.

Despite the cautiously optimistic outlook, navigating the housing market can be tricky in these uncertain times. Here are some tips for both buyers and sellers:


  • Do your research: Understand the local market trends, get pre-approved for a mortgage, and be realistic about your budget.
  • Be patient: Don’t rush into a purchase. Finding the right home at the right price might take some time.
  • Consider your long-term goals: If you plan to stay in the home for several years, short-term market fluctuations become less concerning.


  • Price competitively: Consider the current market conditions and be prepared to adjust your pricing expectations if needed.
  • Highlight your home’s unique selling points: Attract potential buyers by emphasizing the features and benefits that make your property stand out.
  • Work with a reputable realtor: An experienced agent can guide you through the selling process and help you achieve the best possible outcome.

The U.S. housing market is in a state of flux, but a crash seems unlikely based on the available data. A period of recalibration is more probable, with home price growth slowing down or plateauing. While affordability concerns remain, tight inventory and continued investor interest could prevent a significant price decline.

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