California’s sluggish homebuying pace may be on par with Great Recession lows, but one measure of mortgage weakness is far better than what was seen in real estate’s ugliest days.
My trusty spreadsheet reviewed a Cotality report for the first quarter of 2026 detailing a curious measure of housing health that compares borrowings with estimated values for 49 states – Vermont wasn’t included, and the District of Columbia. That gap is what’s called a homeowner’s equity – the byproduct of down payments, housing appreciation and swings in loan balances.
Housing’s warning signals can be hidden within the concept of “underwater” mortgages, also known as negative equity. That’s when borrowers owe more than a property is worth – upping the risk they’ll walk away from the home and default on its loan if financial conditions worsen, since they have no equity to lose.
Cotality’s figures show that California had 55,568 underwater properties as of the first quarter of 2026. That was the fourth-highest among the states, behind some economic archrivals: Texas at 91,568 and Florida at 69,431. No. 3 was New York at 55,629.
But before you gulp, note that California’s underwater loans are just 5% of the nation’s 1.2 million. Meanwhile, California has 11% of the nation’s mortgaged homes.
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So just a 0.7% share of California’s mortgages are underwater. That’s the lowest percentage among the states and less than half of the nation’s 1.7% rate. No. 2 was Nevada at 0.71%, followed by Hawaii at 0.9%. Florida was seventh-lowest at 1.1%.
Where are underwater mortgages most common? Louisiana’s 5.6%, Iowa’s 4.8% and South Dakota’s 4.1%. Texas ranked No. 30 at 1.7%.
California’s minimal underwater loans stand in stark contrast to a steep sales freeze linked to unaffordable pricing.
There were 320,900 statewide home purchases in the 12 months through April, according to Attom. That’s 26% below the historic pace and even less than the Great Recession’s slowest clip.
The way we were
How rare are today’s underwater mortgages?
Go back to the real estate debacle of the Great Recession, spurred largely by shoddy and aggressive lending practices. Once folks couldn’t afford those loans, foreclosures skyrocketed, and home values tanked.
As a result, between 2009 and 2013, California’s underwater mortgages peaked at 37% of all home loans.
Yes, there was a time when more than one-third of California homeowners owed more than their home was worth.
It wasn’t some California craziness. The nation’s peak was 26%. And five states topped the Golden State: Nevada at 73%, Arizona at 54%, Florida at 51%, Michigan at 42% and Georgia at 40%.
They were ugly times, and today’s conditions can’t compare.
By the way, underwater mortgages peaked in Texas at 13%. Its lending laws throttled much of the mortgage madness that fueled the mid-2000’s housing bubble that eventually burst.
What’s next?
Underwater mortgages weren’t growing in early 2026.
Home values remain stubbornly high, and most lenders have been stingy about who gets a loan, taking an ultra-cautious approach dating to reforms following the Great Recession.
In the past year, California’s number of underwater mortgages was essentially flat, while the nation’s total fell by 9%.
These troubled loans jumped in just one state: South Dakota, up 45%. Florida did have the fourth-highest increase, but it was only 4%.
Underwater loans fell most in New York, off 24%, Illinois, off 23%, and Alaska, off 21%. And Texas was off 11%.
California housing has plenty of challenges, but shaky mortgages isn’t one of them.
Big values
Let’s look at this financial cushion on a very personal basis.
Cotality says the average equity across the Golden State at the start of 2026 was a stunning $627,000 for mortgaged homes. This does not include properties that are owned free of any loans.
California’s average equity was the second-highest among the states and slightly more than double the nation’s $310,500 — only Hawaii was higher at $688,000. Massachusetts was No. 3 at $480,000.
This real estate bounty helps explain some of California’s economic quirks: from the wealthy vibes in a high-cost state to why so few Californians move to the cost of joining the ownership game and residents’ overly protective nature about their neighborhoods. (You know, NIMBYism!)
Because serious money is at stake.
Ponder the national lows for equity: Louisiana at $115,000, Oklahoma at $124,000, and Iowa at $124,000.
Or think about California’s economic archrivals: Texas ranked No. 35 at $200,000, while Florida ranked No. 19 at $288,000.
Total take
Then consider this pile of money as a statewide stash.
Take all that equity, multiply it by California’s 6.6 million mortgaged properties, and you get to $4.1 trillion in value above what’s owed.
That’s easily the nation’s top and represents 23% of the nation’s $17.9 trillion in home value above mortgages owed.
Yes, California’s almost one-quarter of the U.S. total.
No. 2 is Florida at $1 trillion, then comes New York at $995 billion. Texas ranked No. 4 at $935 billion.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
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