According to HousingWire, we're looking at a significant shift in the housing market heading into 2027. The number of homeowners who are both underwater on their mortgages and behind on payments has doubled in just one year, jumping from around 163,000 homes nationally to 320,000. When you add in all underwater properties regardless of payment status, that number climbs to over 800,000 homes. This combination of negative equity and delinquency is what typically pushes homeowners toward short sales as a way to avoid foreclosure.
The data from HousingWire shows that this trend is accelerating across different loan types, though it's hitting some borrowers harder than others. Veterans Affairs backed mortgages saw underwater situations jump 44%, while FHA insured loans rose 38%. Even conventional mortgages backed by Fannie Mae and Freddie Mac, which are generally more stable, increased by 7%. These aren't small percentages we're talking about.
What's interesting is that short sales have already started climbing. The industry saw quarterly short sales hit a five year high in the second quarter of 2026, and they've been trending upward for four consecutive quarters. The FHFA reported that short sales on government-backed loans jumped 76% year over year. Now, these numbers are still tiny compared to what we saw during the financial crisis when there were massive volumes, but the direction is clear and the momentum is building.
Mortgage servicers and government agencies are getting ahead of this. They're adding tools to help homeowners navigate the process, including programs like SmartSale that let distressed homeowners list on both the MLS and auction sites simultaneously. The uptake on these options is climbing fast. HousingWire reported that interest in SmartSale jumped significantly quarter over quarter, with particularly dramatic increases among homeowners learning about it directly from their servicers.
What I am seeing locally here in the Bay Area and East Bay is that we've been relatively insulated from these underwater situations compared to other parts of the country, but we need to pay attention. When national trends like this take hold, they eventually work their way to our market. The servicers getting proactive about short sale solutions tells me they're preparing for volume. As a broker, this means I need to make sure I'm ready to help clients in distress understand all their options, and that I'm up to speed on every tool available to help them navigate what could be a challenging period ahead.
