One
of
the
most
alarming
aspects
of
the

housing
bubble
crash
was
the
staggering
number
of
Americans
who
were
underwater
on
their
homes.
In
2010,
CoreLogic’s
national
data
in
the
fourth
quarter
revealed
that
a
shocking
23.1%
of
homes
with
mortgages
were
underwater,
totaling
just
over
11
million
homes.

However,
the
situation
has
significantly
improved
since
then,
thanks
to
the

Qualified
Mortgage
rule
(QM)
that
was
implemented
in
2010.
Today,
we
see
a
much
more
manageable
figure,
with
approximately
1
million
homes
underwater,
representing
a
significant
and
reassuring
reduction
to
roughly
1.8%
of
homes
that
have
a
mortgage.

What
a
difference
a
cycle
makes,
right?
We
only
have
1.8%
of
homes
with
underwater
mortgages,
and
roughly

40%
of
homes
in
America
don’t
even
have
a.
mortgage.
The
nested
equity
level
of
U.S.
households
who
own
homes
is
massive.
However,
that
isn’t
even
the
best
housing
data
line:
The
truth
is
that
American
homeowners’
cash
flow
has
never
looked
this
great.

Not
being
underwater
is
a
plus
—
having
enough
equity
to
sell
and
cover
the
transaction
cost
is
even
more
significant
if
you’re
financially
stressed
and
need
to
sell.
But,
we
don’t
have
large
numbers
of
American
homeowners
that
are
financially
stressed
right
now.

Most
homeowners
aren’t
in
financial
distress
as
their
cash
flow
has
been
solid
since
2010,
thanks
to
that
QM
rule.
This,
combined
with
the
2005

Bankruptcy
Reform
law
and
the
most
prolonged
economic
and
job
expansion
in
our
nation’s
history
before
COVID-19,
has
created
a
favorable
financial
environment
for
American
homeowners.
It
was
an
excellent
setup
for
American
homeowners
to
have
a
fixed
debt
cost
(that
30-year
mortgage)
with
their
wages
rising
yearly.
As
we
can
see
in
the

FICO
score
data
below,
household
cash
flow
data
looks
excellent.

It’s
good
to
remember
that
U.S.
homeowners
are
living
in
their
homes
longer
and
longer.
For
example,
from
1985-2007,
housing
tenure
was
five
to
seven
years;
from
2008-2024,
it
grew
to
11-13
years.

Also,
since
2012,
we
have
had
three

refinance
waves:
2012,
2016
and
2021-2022.
Not
only
have
Americans
benefited
from
fixed
debt
costs,
but
their
wages
have
risen
and
they
have
been
able
to
refinance
at
lower

mortgage
rates.
This
is
a
significant
advantage
of
the
U.S.
housing
market,
which
offers
a
30-year
fixed
mortgage,
especially
compared
to
countries
like
Canada
that
have
had
to
try
90-year
loan
modifications.

So,
what
are
some
risks
with
current
underwater
mortgages?
Well,
we
have
people
who
bought
homes
in
2022,
when

home
prices
peaked
in
certain
cities.
If
they
had
a
low
down
payment
and
needed
to
move
or
sell,
they
must
bring
cash
to
the
closing
to
make
the
difference.

While
I
am
not
a
mortgage
rate
lockdown
person,
equity
lockdowns
are
real,
and
when
you’re
underwater
or
barely
positive,
this
limits
your
options
to
sell
and
move
without
needing
more
cash
to
close.
Also,
many
homeowners
count
on
their
equity
growth
to
help
them
with
a
down
payment
for
their
next
home.

The
most
significant
risk
from
being
underwater
is
that
if
you’re
experiencing
financial
stress,
you’re
a

foreclosure
risk.
When
you
don’t
have
enough
selling
equity,
if
you
lose
your
job
and
have
minimal
assets,
you
could
have
few
other
options
than
to
go
into
the
foreclosure
process.
This
is
the
risk
of
late-cycle
lending
in
the
U.S.,
especially
with
anyone
with
a
low
or
zero
down
payment
loan.
With
all
that
said,
you
can
see
the
U.S.
foreclosure
data
looks
very
healthy
right
now,
especially
compared
to
the
terrible
period
of
2005-2008,
all
before
the
job
loss
recession
2008
happened.

What’s
the
takeaway
from
this
data?
The

housing
market
doesn’t
have
an
underwater
home
problem,
but
that
doesn’t
mean
there
isn’t
risk
for
homeowners.
So,
when
the
next
job
loss
recession
happens,
will
the
government
enact
another
forbearance
program
like
they
did
in
2020?
Or,
will
they
allow
the
marketplace
to
handle
the
distressed
homeowners
since
it
looks
like
we
don’t
have
the
same
credit
markets
that
led
to
the
housing
bubble
crash
of
2008?

Time
will
tell
on
that
question.
However,
we
can
say
without
a
doubt
that
most
homeowners
are
well
above
water
with
their
homes,
and
that’s
not
counting
the
nearly
40%
of
homes
that
don’t
even
have
a
mortgage,
which
is
a
very
positive
story
for
the
United
States
of
America.