U.S. home prices increased by 10.1% annually in October compared to 11.4% in September. That’s the lowest year-over-year increase since early 2021, and the trend is expected to continue.

One in 12 U.S. homes purchased in 2022 now have upside-down mortgages, according to Black Knight’s October Mortgage Monitor Report. And the real estate market corrections are just getting started.

According to CoreLogic, annual price appreciation could slow to 4.1% by October 2023.

“Weakening housing demand and the resulting decline in home prices since the spring’s peak reduced annual home equity gains and pushed an additional number of properties underwater in the third quarter,” said Selma Hepp, interim lead of the Office of the Chief Economist at CoreLogic.

Among borrowers who purchased a mortgage between May and July of last year—the peak of the market—almost 10% are marginally underwater and another 30% have less than 10% equity.

Of the 450,000 upside-down mortgages at the end of Q3, almost 60% were originated in 2022.

Eighty percent of major real estate markets have seen home prices falling, but the share of upside-down mortgages varies by market. For example, in San Jose, California, only 2.4% of mortgages purchased in 2022 are underwater. But in Colorado Springs, Colorado and Honolulu, Hawaii, that number has surpassed 30%.

And if CoreLogic’s prediction is correct, we can expect to see more upside-down mortgages in 2023.

Adding insult to injury, this trend isn’t doing much to improve affordability for would-be homebuyers. The monthly principal and interest payment on a median-priced home with 20% down was $2,171 in November. That’s $65 lower than October—but $838 higher than a year ago.

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