What Rising Underwater Mortgages Really Tell Us About the Housing Market

Florida Is Struggling. Austin Is Correcting. Why Is Southeast Michigan Holding Up?

Recent housing headlines have focused on a growing number of homeowners who are "underwater" on their mortgages.

According to ATTOM's latest Home Equity and Underwater Report, 3.2% of mortgaged homeowners nationwide are now considered seriously underwater, meaning they owe at least 25% more than their home is worth.

At first glance, that sounds concerning.

But after more than 25 years in real estate, I think most people are focusing on the wrong number.

Underwater mortgages aren't the cause. They're the result.

The real story is what's happening to property values.

And in real estate, one principle still carries the day:

Supply and demand.

When demand weakens, inventory rises, or ownership costs become too burdensome, home values can decline. When home values decline, more homeowners find themselves underwater.

That's exactly what's happening in several parts of the country today.

Florida: Rising Costs Are Changing the Equation

Florida has become one of the most closely watched housing markets in the country.

While demand remains strong in many areas, homeowners are facing increasing financial pressure from rapidly rising insurance premiums and new condominium reserve requirements.

Many condo owners are now dealing with significant special assessments as associations work to fully fund reserves. In some communities, long-time owners are choosing to sell rather than absorb the additional costs.

In many areas of Florida, demand from international buyers has been reduced significantly, and long time international owners are divesting the assets due to political tensions. , 

When more owners want to sell and fewer buyers are stepping forward, prices naturally face pressure.

Austin, Texas: A Post-Pandemic Correction

Austin experienced one of the most dramatic housing booms in America during and immediately after COVID.

Remote work, migration, and low interest rates fueled a rapid increase in home values.

Today, many neighborhoods are correcting from those historic highs.

This doesn't necessarily mean Austin is in trouble. It simply means prices rose faster than the market could sustainably support, and values are adjusting accordingly.

Colorado: Inventory Is Back

In the Denver metro area and surrounding communities, active inventory has increased substantially compared to the ultra-competitive pandemic market.

Buyers have more choices than they've had in years.

As inventory rises, buyers gain negotiating power. Sellers often need to offer concessions, reduce prices, or wait longer to secure offers.

The greatest pressure has been felt in starter-home, condo, and townhome segments where affordability challenges remain significant.

Nevada: Entry-Level Housing Faces Pressure

Many Nevada markets are experiencing similar challenges.

Higher mortgage rates have made affordability more difficult for first-time buyers, while rising HOA fees have made some condos and townhomes less attractive.

As a result, entry-level housing segments are seeing more price sensitivity and increased competition among sellers.

Again, the issue isn't underwater mortgages.

The issue is what happens when local market conditions place downward pressure on property values.

Why Southeast Michigan Looks Different

Now let's bring this closer to home.

Michigan recently recorded its fourth consecutive year of population growth.

According to the Michigan Center for Data and Analytics, the state added nearly 28,000 residents between 2024 and 2025 and, for the first time in decades, experienced positive domestic migration, meaning more people moved into Michigan from other states than moved away.

That's important because population growth fuels housing demand.

At the same time, many Southeast Michigan communities continue to face limited housing inventory.

While we're not immune to economic changes, the quantity of supply-and- quantity of demand equation here remains very different from what we're seeing in many parts of Florida, Texas, Colorado, and Nevada.

More people are moving in.

Inventory remains relatively constrained.

Demand remains steady.

Those fundamentals help support property values.

Michigan Still Has Challenges

That doesn't mean every market in Michigan is identical.

Certain Detroit-area ZIP codes and some rural counties continue to have higher concentrations of distressed or underwater mortgages than the state average.

In fact, approximately 2.8% to 3.0% of Michigan homeowners with mortgages are currently considered seriously underwater.

But that figure remains below many of the markets making national headlines.

More importantly, Michigan's broader housing market continues to benefit from population growth and demand trends that many states would welcome.

The Takeaway

Whenever you see a headline about underwater mortgages, don't stop at the statistic.

Ask what is causing property values to rise or fall, because that's where the real story lives.

Supply and demand still carries the day.

Florida has insurance and condo-cost challenges.

Austin is correcting after a historic run-up.

Colorado is dealing with surging inventory.

Nevada is feeling pressure in entry-level housing.

Meanwhile, Southeast Michigan continues to benefit from population growth, steady demand, and limited inventory.

That's why whenever someone asks me what's happening in the housing market, my answer is always the same:

"Which market are we talking about?"