Drowning in Debt: Housing and Households with Underwater Mortgages

June 11, 2011
George R. Carter III and Alfred O. Gottschalck

In 2004, homeownership rates peaked in the United States with home prices peaking two years later in 2006. Since these peaks, homeownership rates and home prices have fallen at the national level. An increasing number of homeowners are now “underwater” in their mortgages, meaning that they owe more on their mortgages than their homes are worth. Two longitudinal Census surveys collect data on mortgages, making it possible to provide an estimate of the prevalence of underwater mortgages over time. The American Housing Survey (AHS) collects information on the quality of housing in the United States and information on household characteristics. The Survey of Income and Program Participation (SIPP) collects information about income and program participation in the United States and detailed data on taxes, assets, liabilities, and participation in government transfer programs. Whereas the AHS follows housing units over time, the SIPP follows individuals and households over time. While the surveys may not collect data on the actual value of the home, both surveys collect owner estimated home values and data on outstanding principal and interest on mortgages. We use these measures to calculate home equity and to develop an estimate of whether the mortgage is underwater. Using data from the 2003, 2005, 2007, and 2009 American Housing Surveys, we explore national and regional trends in underwater mortgages, as well as housing and mortgage characteristics associated with these mortgages. Using two waves of data from the 2004 SIPP Panel, we examine tenure transitions of individuals and households whose mortgages are underwater. We find across the board increases in underwater mortgages in 2009 and find owners who are underwater or have high housing burdens to be at greater risk of homeownership exit.

Related Information

September 2004

August 2006

September 2008

March 2011