Underwater Mortgages in 2026: Where Negative Equity Is Rising

How many US mortgages are underwater in 2026?

About 3.2% of mortgaged US homes were "seriously underwater" in the second quarter of 2026, up from 2.7% a year earlier. That is the headline figure in a recent video from the YouTube channel Michael Bordenaro Clips, which draws on quarterly equity data from a property-data firm (the auto-generated captions render the name as "Adam's," almost certainly ATTOM). The same data show the share of "equity-rich" homeowners slipping from 47% to 41%.

So is a wave of distressed sales coming? The numbers show a clear deterioration in equity, but not yet a surge of forced sales. Negative equity is a risk factor, not a trigger. This article walks through the figures, where they are concentrated, why the geography is surprising, and what buyers, sellers and owners can reasonably do with the information.

What "seriously underwater" and "equity rich" actually mean

A mortgage is underwater when the amount owed is greater than the home's estimated market value. Data firms usually set a higher bar for "seriously" underwater. ATTOM's published definition, as we understand it, is a loan balance at least 25% above the estimated value, though readers should confirm the exact threshold on the company's site.

The opposite end of the spectrum is "equity rich." In the video's description, a home qualifies when the combined mortgage debt is no more than half its estimated value. On a $400,000 home, that means owing $200,000 or less.

Two cautions apply to both measures:

• Values are estimates. Automated valuation models can lag fast-moving local markets, so a home flagged as underwater may sell for more or less than the model says.
• Paper equity is not cash. A homeowner is only "underwater" in practical terms if they have to sell, refinance or hand back the keys.

The key numbers from the second quarter

Michael Bordenaro Clips lays out a set of figures that are easy to compare side by side:

The creator says the increase is broad, showing up in 33 states rather than a handful of troubled metros. A half-point rise in the national rate may sound small, but applied to tens of millions of mortgaged homes it represents a large number of households. He characterizes it as millions of homes; we could not verify an exact count from the transcript, so treat that as a rough description.

Where negative equity is concentrated, and why it is surprising

The most striking part of the data is the map. The top five states are Minnesota, Louisiana, Iowa, Mississippi and Arkansas. None is Florida, Texas or Arizona, the Sun Belt markets most people associate with pandemic-era price spikes and, more recently, price declines.

Bordenaro's reading is that the Midwest's reputation for steady appreciation hid a late-cycle problem. In his telling, buyers who stretched during bidding wars are now the ones holding homes worth less than their loans. He highlights Minnesota in particular: it posted the biggest jump and now ranks first, ahead of Florida, with a rate he says quadrupled in a year.

Several plausible explanations are worth considering, though the video does not test them:

• Recent, high-leverage purchases. Buyers who put little down in 2022 through 2024 have had the least time to build equity. Even a modest price dip can push them below the loan balance.
• Local price softness. Markets where values have flattened or dipped after a run-up erode thin equity cushions fastest.
• Weather and insurance costs. In places such as Louisiana, rising insurance premiums and storm risk can weigh on what buyers will pay. This is general context, not a finding from the video.
• Data quirks. Smaller states with fewer sales can swing sharply on small changes in valuations.

For a closer look at how Sun Belt price declines compare, see our coverage of 12 Florida cities where home prices are falling fastest in 2026.

Why shrinking equity matters beyond home prices

The video's second major argument is about spending. Over the past several years, many owners with large paper gains tapped their homes through home equity lines of credit (HELOCs), home equity loans and cash-out refinances. Bordenaro says that money paid for vehicles, renovations, debt payoff and even vacations, and he expects that source of spending to shrink as equity thins.

The mechanics support that logic. Lenders typically cap total borrowing at a percentage of a home's value, often somewhere around 80% to 90% combined loan-to-value, depending on the lender and loan type. When values fall or balances stay high, fewer owners qualify for new credit, and those who already have lines may see them frozen or reduced. The creator goes further and suggests some lenders could demand early repayment if they become nervous. That can happen in limited circumstances under the terms of a credit line, but it is not a common outcome, and borrowers should read their own agreement rather than assume it.

The effect on the broader economy is difficult to size. Equity extraction is only one of many sources of consumer spending, and a fall from 47% to 41% equity-rich still leaves a large majority of owners with substantial cushions in absolute terms.

Does this signal a wave of distressed sales?

Not by itself. Foreclosures and short sales generally need a "double trigger": negative or very thin equity plus a hardship event such as job loss, divorce, medical bills or a payment shock from an adjustable-rate loan. Owners with fixed-rate mortgages and steady income can ride out a dip in value, particularly if they do not need to move.

That is a key difference from the 2008 era. Bordenaro himself says it is not a repeat "just yet," while arguing the pattern looks similar and that this cycle may unfold more slowly and last longer. Lending standards after 2008 were tighter, and many current borrowers hold fixed-rate loans at rates below today's market, which discourages them from selling. We explored that lock-in effect in Why the US Housing Market Is Frozen as Mortgage Rates Near 7.5%.

What would change the picture is a rise in unemployment or delinquencies. Signals worth tracking include:

1. Mortgage delinquency and foreclosure-start data from lenders, the New York Fed's household debt report and data firms.
2. Local inventory and price-cut trends, discussed in Housing Inventory Hits a 10-Year High, but Buyers Aren't Biting.
3. The labor market, since job losses are the usual path from negative equity to default.
4. Mortgage rates, which determine whether owners can refinance out of trouble.

Limits and counterpoints to the video's argument

Bordenaro is open about his bearish stance. He says he saw the 2008 crash firsthand as a Miami agent starting in 2009, where he describes prices falling 40% to 50%, and he argues the economy today is under greater strain from cost of living and what he calls functional unemployment. Several points deserve balance:

• Share versus scale. A rate of 3.2% means roughly 97 in 100 mortgaged homes are not seriously underwater. During the 2008-era crisis, negative equity was far more widespread, according to historical industry data.
• Unemployment context. The creator's claims about hidden unemployment are opinion and are not backed in the video by a named statistic. Readers should check official labor data.
• Equity-rich is a high bar. Falling from 47% to 41% reflects a tougher definition being met by fewer homes, not necessarily a collapse. Many owners who miss that threshold still hold sizable equity.
• Valuation model risk. All estimates depend on automated valuations, which can overshoot in both directions.
• Comparisons to 2008. Different loan types, underwriting rules and levels of owner equity mean similar headlines do not guarantee similar outcomes.

What this means for you

If you are a buyer: Local price trends matter more than national headlines. In states with rising negative equity, a smaller down payment leaves less margin if values dip. Consider a larger down payment where you can afford it, get a realistic appraisal-based picture of comps, and plan to hold the home for several years. Watch for motivated sellers and price cuts, as covered in Homebuyer Demand Is Falling as Sellers Cut Prices.

If you are a seller: If your loan balance is close to your home's value, price from recent sold comparables rather than past peaks. Ask a local agent to estimate net proceeds after costs before you list. If a sale would fall short, ask your lender early about options. Avoid waiting until you are behind on payments.

If you are a homeowner who is staying put: Negative equity on paper is not a loss until you sell. Keep payments current, build an emergency fund, and be cautious about borrowing against equity for discretionary spending. If you hold a HELOC, review whether your lender can freeze or reduce the line. If you are struggling to pay, HUD-approved housing counselors and your loan servicer can discuss options. This is general information, not personalized financial advice.

What to watch next

The next quarterly equity release will show whether Minnesota's jump was a one-off or the start of a trend, and whether Louisiana, Iowa and neighboring states follow. Also watch for any rise in foreclosure filings in those states, the direction of 30-year mortgage rates reported weekly by Freddie Mac, and the Treasury yield backdrop, which we covered in 10-Year Treasury Yield Spikes to 2008 Levels.

The evidence so far supports a narrower conclusion than the video's tone suggests: equity is eroding at the margins, concentrated in specific states, and worth monitoring closely. Whether it becomes a distress story depends less on the equity numbers themselves than on jobs and borrowers' ability to keep paying.