Baton Rouge and other boom buyers now owe more than their homes are worth

Some homeowners who bought near the peak of the pandemic housing boom are now finding themselves underwater—owing more on their mortgages than their homes are worth, The Wall Street Journal reports. 

Though still a small share, the number of underwater mortgages is growing, especially in boomtowns like Austin, Cape Coral and San Antonio―and to a lesser degree, Baton Rouge and New Orleans―where prices surged and have since dropped nearly 20% in some areas.

Being underwater can trap homeowners, making it hard to sell or refinance. The trend is hitting first-time buyers and those with low-down-payment FHA or VA loans the hardest. Still, experts say tighter lending standards and strong job markets reduce the risk of mass foreclosures like in 2008.

With the market rebalancing and mortgage rates still elevated, homeowners who bought recently are less likely to see big returns. For now, staying put may be the safest move—unless prices continue to slip.

Redfin economists expect a modest price dip this year, meaning more homeowners could end up in negative equity, even as national housing prices remain historically high.

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