A growing number of homeowners who bought in pandemic boomtowns owe more than their homes are worth, according to a new report.
During the Covid-19 pandemic, people with substantial savings who wanted a larger living space were driven to buy homes while mortgage rates were low, the Wall Street Journal explained in a recent article.
They moved to towns such as Austin, Texas and Cape Coral, Florida, but now they are underwater, the Journal reported. An underwater mortgage occurs when a home loan has a higher principal than the market value of the property.
More than half a million homeowners were underwater in April, Andy Walden, head of mortgage and housing market research at Intercontinental Exchange, told the Journal.
The Journal reported a quick rise in home prices in these boomtowns was followed by a nearly 20 percent price drop in some of them after mortgage rates began to spike in 2022.
This, along with the construction of more houses to meet demand, means a more balanced market between buyers and sellers, according to the Journal.
While this is good news for potential homebuyers, it’s unfortunate for homeowners looking to sell their houses.
Now that their homes are worth less than they owe on their mortgages, if they want to sell, they’d have to pay their mortgage company the remaining balance once they sell at a lower price, the Journal reported.
There is a surplus of unsold houses sitting on the market for weeks in these boomtowns, Bloomberg reported last Tuesday.
The initial increase in home prices caused by pandemic-era demand can be described as a housing bubble. When the demand decreases as home supply increases, prices will drop, and the bubble will burst.
But despite price drops in these boomtowns, home prices remain high overall, the Journal reported. Forbes and Business Insider both reported low possibilities of the housing market crashing in 2025.
