New data shows that about one in 37 home mortgages are “seriously underwater” in the United States, stoking fears of a housing market crash.

This begs the question: What does it mean for a home to be underwater?

Well, a mortgage is underwater when the loan on the property accounts for more than its estimated market value. A “seriously” underwater mortgage refers to a loan that is 25% or more than its market value.

Across the U.S., 2.7% homes carried loan balances of at least 25% more than their respective market values in the first quarter of 2024. This represents a 0.1% increase from the 2.6% level recorded in Q4 2023. Though the percentage of seriously underwater homes remains less than half its pre-pandemic share, according to the ATTOM Q1 Home Equity & Underwater report.

Interestingly, the portion of equity-rich mortgages also decreased in the majority of U.S. states in Q1, typically by less than 2%.

The largest quarterly decline in mortgage equity came from the south, specifically in states like Kentucky, South Carolina and Georgia as well as Indiana. These states experienced some of the most pronounced losses.

What Does the Rise of Underwater Mortgages Mean for a Housing Market Crash?

An underwater mortgage is typically the result of people overpaying for their home or putting too small of a down payment on the property. As such, as the value of the home declines, the mortgage can easily become underwater.

Underwater mortgages are generally unwanted by homeowners and lending banks alike, for a variety of reasons. Should the homeowner need to move, for whatever reason, the sale of the house alone won’t cover the cost of the mortgage. Additionally, underwater mortgages have a higher rate of defaults. During the infamous 2008 housing market crash, many homeowners quietly stopped making payments on their underwater properties.

That said, there is always the chance the property later increases in value, making it underwater only temporarily.

Even despite the rise in underwater mortgages, housing equity remains solid on a whole.

“Homeowner balance sheets continue to benefit in a huge way from the boom times in the form of elevated equity that can be used to help finance all kinds of things, from home renovations to business startups. Still, the windfalls are starting to erode bit by bit amid mounting signs that the market is no longer so super-heated,” said ATTOM CEO Rob Barber. “It’s too early to make any broad statements about the market direction, especially coming off the typically slower Fall and Winter months.”

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.