In the rush of the pandemic housing surge, markets like Austin, Cape Coral, and San Antonio saw home values skyrocket. Fast forward to today—and a growing number of buyers from that era now owe more on their mortgages than their homes are worth.

According to new data from Intercontinental Exchange, more than 500,000 U.S. homeowners were underwater on their mortgages as of April—the highest number for that month in five years. And the issue isn’t evenly spread. It’s concentrated in the same “Zoomtowns” that drew massive in-migration during the pandemic.

Sunbelt Slippage

Cape Coral, FL, leads the list with 7.8% of homes underwater, followed by Lakeland (4.4%), San Antonio (4.3%), Austin (4.2%), and North Port (3.8%). These are markets that surged due to lifestyle migration and affordability narratives, only to get hit by a reset in pricing as higher rates, cooling demand, and a catch-up in supply took hold.

It’s a sharp reversal for places that not long ago were reporting double-digit annual appreciation. Now, some owners are learning that buying at the top can have real consequences—even if a full-blown housing crash isn’t in the cards.

Who’s Most at Risk?

The pain is disproportionately falling on FHA and VA borrowers—buyers who made lower down payments and often entered the market with tighter financial cushions. These loans accounted for nearly 75% of all underwater mortgages in April and are also behind nearly all the year-over-year rise in delinquencies.

That’s a concern. While overall delinquency rates remain modest and foreclosures are rare, it highlights the fragility for newer buyers who lack equity or flexibility. In today’s higher-rate environment, they’re effectively stuck—unable to refinance, move, or tap into their home’s value.

This Isn’t 2008—but It’s Not Nothing

Yes, today’s lending standards are far tighter, and household balance sheets are generally stronger. We’re not looking at systemic collapse. But negative equity still matters. It traps mobility, stalls sales, and creates economic drag in markets that are otherwise trying to regain footing.

One Atlanta-area homeowner told The Wall Street Journal he’s listing his $400,000 house at $385,000 just to avoid being underwater. He’s not alone.

Looking Ahead

Redfin’s Chen Zhao expects home prices to fall another 1% nationally by the end of the year, which could push more recent buyers into negative equity—especially in fast-cooling metros. The good news? Most owners have a cushion. The bad news? Some don’t.

This isn’t a crisis. But it is a red flag—especially for developers, investors, and policymakers focused on housing stability. Timing and leverage matter more than ever in an uneven market like this.