A recent Wall Street Journal report reveals a growing issue: homeowners who bought at the market peak—especially in pandemic boomtowns—are now stuck underwater, owing more than their homes are worth.

While home prices remain elevated overall, some regions have seen values drop up to 20%, pushing over 500,000 homeowners underwater in April, the highest level in five years.This trend is fueled by rising mortgage rates, expanded housing supply, and buyers who entered during the highs, often using low-downpayment FHA or VA loans.

Although this isn’t causing a flood of foreclosures—thanks to tighter lending standards and borrowers keeping up with payments—it may suppress move-up activity and strain prospective sellers.

Why REO Agents & Brokers Should Care

1. A Holding Pattern for Inventory
Underwater homeowners—especially those with FHA or VA loans—often delay selling to avoid bringing cash to closing. That slows turnover and limits new listings in your market, reinforcing the tight supply dynamic.

2. Hidden Distress = Opportunity
These homeowners may not be in active default yet, but many are vulnerabilities waiting to happen. Your market intelligence could help uncover early indicators—job transfers, hardship, or intent to downsize—before a property hits foreclosure.

3. Long-Term Value for Buyers
When these properties eventually come to market, they may do so under pressure and at a discount. Positioning yourself now as a local expert ready to handle short sales, negotiations, or asset resolution can pay off as prices stabilize.

‍