You bought your home two years ago. Now, it’s worth less than the remaining balance of your mortgage. You thought that this wasn’t supposed to happen anymore after increased lending scrutiny. But in parts of Texas and Florida, a growing number of homeowners now owe more on their mortgage than their property is worth—a situation known as being “underwater.”
New data shows 4.2% of homeowners in Austin, TX, are in negative equity, along with 4.3% in San Antonio, TX, 4.4% in Lakeland, FL, and 7.8% in Cape Coral, FL.
The headlines are enough to stir uneasy memories of the mid-2000s housing bubble, when plunging prices left millions of owners facing foreclosure. But the story this time is different.
“This is a far cry from the housing bust and foreclosure crisis of 2008,” says Jake Krimmel, senior economist at Realtor.com®. “Nationally, homeowners are sitting on near-record levels of home equity.”
That’s a critical difference from 2009, shortly after the bubble burst, when nearly 1 in 4 homeowners nationwide was underwater. Back then, negative equity was a nationwide crisis, touching nearly every market. Today, it’s much smaller in scale, concentrated in a handful of markets, and driven by a very different set of forces.
Still, for the homeowners who do owe more than their property is worth, the pressure is real. It can limit their ability to sell, refinance, or move—and in some cases, it can feel like a crisis in its own right.
Where it’s happening—and why it’s happening here
The rise in underwater mortgages is highly localized, emerging in select metros mostly concentrated in the South. What these markets have in common is a rapid COVID-19 pandemic-era price surge followed by a sharper-than-average pullback.
Key markets in Texas, Florida, and other Sun Belt states saw a flood of new residents from 2020 to 2022, lured by bigger homes, warmer weather, and what seemed like more affordable prices. The crush of demand sent values rocketing upward until higher mortgage rates cooled the frenzy and prices began to retreat.
In Florida, the shift has been compounded by escalating costs of ownership, from rising insurance premiums to climbing property taxes and homeowners association fees. In parts of Texas, a steady pipeline of new construction has kept supply high, creating added downward pressure on prices.
For those who bought near the top, often with smaller down payments, there was little equity to act as a cushion. So when prices pulled back off of record highs, it was enough to tip some into negative equity.
“Even though the number of negative-equity homeowners have ticked up in some areas, such trends are relegated to a few metros that have seen double-digit price declines over the last few years and pockets of recent, high-LTV buyers within those metros,” explains Krimmel.
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2008 vs. 2025: The market comparison
Today’s numbers clearly illustrate the difference since the housing bubble. In 2009, roughly a quarter of U.S. homeowners were underwater on their mortgage. Today, that share is only in a handful of markets, and in the areas affected, the total share is under 8%.
“In South Florida, I was carrying 60-plus listings, no foreclosures,” says Jeff Lichtenstein, a broker in Jupiter, FL, and CEO of Echo Properties, of the 2008 crash. “With short sales and foreclosures, it was insane. … You have no idea. It was a depression in South Florida.”
But that’s not the case today. One big reason? The buyers are different.
In the run-up to the last crash, loose lending standards let people buy homes with little money down, spotty income documentation, and shaky credit. When prices fell, they had no equity to fall back on.
This time, most borrowers cleared stricter postcrisis hurdles: higher credit scores, fully documented income, and bigger down payments.
Lichtenstein laughs when asked how lending standards have changed.
It’s “so different,” he says. “Much tougher standards and income must be verified.”
Another big differentiator is the interest rate on those mortgages, says Krimmel.
“Today, nearly three-quarters of mortgage holders (71%) have a rate under 5%, and many more homeowners each month are paying off their mortgage to own their home outright,” adds Krimmel.
An affordable mortgage—or, even better, owning your home outright—can reduce the risk of foreclosure for homeowners in negative equity.
The broader economy is different, too. In 2008, the housing crash collided with surging unemployment, falling wages, and a foreclosure wave.
In 2025, joblessness remains low, wage growth has slowed but is still climbing in many sectors, and household savings—while slipping from pandemic highs—are still healthier than they were before the last downturn. All of that makes today’s negative-equity problem more of a bruise than a break.
Why it still matters locally
For homeowners, being underwater can feel like being trapped in place. Selling means bringing cash to the closing table—often tens of thousands of dollars—and the risk of having to pull that out of pockets rather than home sale proceeds can keep many would-be sellers on the sidelines. Refinancing is usually off the table, too, unless homeowners can pay down the balance (to create enough equity) or home values rebound.
The result is what agents call “frozen inventory”: Homes that might otherwise hit the market stay put, even in neighborhoods with plenty of demand.
But the biggest thing keeping inventory tied up right now isn’t negative equity. Instead, it might be the low mortgage rates that drove home prices up during the pandemic.
“Surely the lock-in effect is an order of magnitude stronger than the negative-equity channel,” explains Krimmel. “While the low mortgage rates may lock in homeowners and keep potential inventory off the market, those same low rates could act as insurance against foreclosures in a hypothetical economic downturn—however unlikely.
“Low, predictable mortgage payments would help keep people in their homes in the unlikely event of a significant recession—yet again exactly the opposite of what happened in 2008,” he adds.
What homeowners should keep in mind
For homeowners worried about another crash, Krimmel says not to worry.
“It would take a sudden, massive, and national price decline to make a dent [the record equity] held by today’s homeowners.” says Krimmel. “Though the housing market is softening in the South and West, inventory remains rather tight in the Northeast and Midwest and prices are far more resilient by comparison.
“Unlike in 2008, there’s little chance of ‘contagion’ in the housing market, where localized issues spread nationwide. Finally, lending standards have become much more strict since the GFC, which both prevent homeowners from going underwater and limit systemic risk to the broader housing finance system,” he adds.
If you’ve slipped into negative equity, it’s not automatically a reason to sell. Your best path forward depends on your timeline, financial stability, and local market conditions.
If you’re staying put
- Keep making on-time payments to steadily build equity and protect your credit.
- Track your local market by using free home value tools, MLS alerts, or a trusted agent to monitor comps and price trends.
- Invest in value-boosting improvements that have a strong return in your market (e.g., kitchen refresh, curb appeal upgrades).
- Consider a loan recast if you have extra cash. Making a large lump-sum payment and asking your lender to recast your loan can lower your monthly payment without refinancing.
If you need to sell
- Price strategically by working with your agent to position your home competitively without chasing the market down.
- Ask about an assumable mortgage. In some cases, a buyer can take over your low-rate loan, making your home far more appealing in today’s high-rate environment.
- Explore seller concessions. Offering to buy down a buyer’s mortgage rate or cover some closing costs can widen your pool of potential buyers.
- Consult your lender early if you’ll need to bring money to closing. Discuss options like short sales or payoff negotiation well before listing.