Homeowner equity hits new high even as underwater mortgages rise 

While home equity remains at record levels on a national basis, parts of the Sun Belt are showing increasing signs of distress.

The August mortgage monitor report from Intercontinental Exchange (ICE) found that mortgage holder equity reached $18 trillion for the first time ever in the second quarter of 2026, and negative equity fell to its lowest level in 10 months.

But at the same time, the number of borrowers who are underwater was up 44% year-over-year at the end of June to 813,000, and 320,000 of those homeowners were also behind on mortgage payments — nearly double the number reported a year ago — making it a "trend worth monitoring as the market continues to normalize," the report said.

Sun Belt markets most affected: Nationally, the share of homeowners with negative equity — meaning their home values are less than their mortgage balances — is still well below pre-pandemic levels, but some parts of the country are not faring as well. 

The highest rates of underwater mortgages are concentrated in Texas and Florida, according to the report. Those two states, which experienced a surge in migration and homebuilding in the early 2020s, have subsequently seen home prices fall more dramatically compared to much of the country, and they account for 39% of all underwater homes nationwide, the report noted.  

The markets with the highest negative equity in Q2 were Cape Coral (11.4%) and Lakeland (7.5%) in Florida, followed by San Antonio (6.9%) and Austin (6.6%) in Texas. The only other states with any markets posting negative equity above 3% were Colorado and Louisiana.

Who is underwater? Most of the homeowners in a negative equity situation purchased their properties in the past few years, according to the report, which estimated that 85% of underwater mortgages were taken out in 2022 or later — just as the national market was slowing down and mortgage interest rates were shooting up.

The report also found that 75% of those currently underwater used an FHA or VA loan, which require a lower down payment, to fund their purchase.

California, Northeast going strong: Much of the country is still in relatively good shape, however. Underwater mortgages are especially rare in parts of the Bay Area and Southern California, according to the report, as well as in Northeastern markets including Boston, Providence and New York — regions that are more likely to be sellers markets. 

The Northeast was also the only geographic region to post an increase in existing home sales in June and had the highest year-over-year median home price increase at 3.9%.  

Equity still rules: Following five straight months of annual home price growth, the average borrower has around $212,000 in "tappable" equity, the report found.

"Mortgage holder equity hitting $18 trillion is a remarkable milestone — one that reflects just how much wealth American homeowners have built," Andy Walden, head of mortgage and housing market research at ICE, said in a press release accompanying the report. 

"The spring market provided a meaningful boost to both prices and equity, and we're seeing those tailwinds work through the data now," Walden added. "At the same time, rates have trended higher since early in the year, which may soften how much additional acceleration we're likely to see in the second half."