Opinion: Rising Numbers of Seriously Underwater Homes Reflect a Complex Economic Landscape

The recent data revealing a rise in seriously underwater homes across the United States, particularly in southern states, underscores the complexities of our current economic situation. According to the first-quarter 2024 US Home Equity & Underwater Report from ATTOM, a real estate data firm, approximately 2.7% of homes nationally are now considered seriously underwater, with loan balances at least 25% more than their market value. While this is up slightly from the previous quarter, it's significantly lower than pre-pandemic levels.

The reasons behind seriously underwater mortgages are varied. They can occur when someone overpays for a home or when a property is purchased with a small down payment, leaving little buffer if the property's value decreases. During the pandemic, government stimulus and rising property prices significantly boosted homeowners. However, higher interest rates aimed at curbing inflation are now contributing to cooling the housing market.

The numbers show that the issue of seriously underwater homes is more acute in certain regions, particularly in the southern United States. In Kentucky, for example, the share of seriously underwater homes jumped to 8.3% in the first few months of the year, up from 6.3% in the previous quarter. Similarly, West Virginia, Oklahoma, and Arkansas have seen increases in seriously underwater homes.

The impact of seriously underwater homes extends beyond individual homeowners. It affects communities, local economies, and the broader housing market. As economic developers, we must understand and address these challenges.

While Wisconsin may not be experiencing the same level of increase in seriously underwater homes as some southern states, it's crucial to remain vigilant. According to the data, Wisconsin is not among the states with the highest number of seriously underwater homes, but that doesn't mean we're immune to the underlying economic factors driving this trend.

Rising numbers of seriously underwater homes can lead to several economic challenges. They can strain local housing markets, decrease property tax revenue for municipalities, and even contribute to blight in neighborhoods as homeowners struggle to maintain their properties. Furthermore, the financial burden on individuals and families facing underwater mortgages can hinder their ability to contribute to the local economy through spending and investment.

As economic developers, we must adopt a multifaceted approach to address these challenges. This includes:

1. Financial Education and Assistance: Providing resources and programs to educate homeowners on responsible borrowing, financial planning, and assistance programs available to help those facing financial hardship.

2. Affordable Housing Initiatives: We are working to increase the availability of affordable housing options to prevent overpaying for homes and reduce the likelihood of homeownership becoming a financial burden.

3. Economic Diversification: Promoting economic diversification to reduce reliance on any single industry or sector, thus creating a more resilient economy less susceptible to economic downturns.

4. Community Development: Supporting community development initiatives to revitalize neighborhoods and increase property values can help lift homeowners out of negative equity situations.

5. Policy Advocacy: Advocating for policies at the state and federal levels that support homeownership, affordability, and economic stability.

In conclusion, the rise in seriously underwater homes across the United States, particularly in southern states, reflects the complex interplay of economic factors affecting homeowners and communities. We must prepare; if Colorado, Oregon, and Washington can be in trouble, so can we. As economic developers, it's our responsibility to address these challenges head-on, working collaboratively with stakeholders to build a more resilient and equitable economy for all.