Homeowners are losing thousands in equity thanks to weakening prices

Homeowners See Decline in Equity as Housing Market Shifts

The US housing market has experienced a significant slowdown in recent months, with home values losing ground and previously substantial annual gains dwindling. As a result, homeowners are witnessing a decline in their equity, with borrower equity falling 2.1% in the third quarter of this year compared to the same period last year. This translates to a collective loss of $373.8 billion, according to a report from Cotality.

The decline in equity is largely attributed to the slowing pace of home price growth and the market’s recalibration from pandemic-era peaks. The average homeowner has seen a loss of $13,400 in equity, while the number of homes in a negative equity position has increased by 21% from last year to 1.2 million. This means that over a million homeowners now owe more on their mortgages than their homes are worth.

Causes of the Decline

The rise in negative equity is driven in part by affordability challenges, which have led many first-time and lower-income buyers to over-leverage through piggyback loans or minimal down payments. Those who purchased their homes more recently, when mortgage rates were higher and prices had peaked, are more likely to be in a negative equity position. Additionally, homeowners have been pulling more equity out of their homes, thanks to significant gains in the past five years.

Home values have increased by approximately 52% since January 2020, according to the S&P Cotality Case-Shiller national home price index. While this growth has slowed in recent months, the average equity gain per homeowner was still $25,000 in 2023 and $4,900 in 2024. However, not all markets are experiencing the same trend, with cities like Boston, Chicago, and New York still seeing positive equity growth.

Regional Variations

The biggest losses in equity have been seen in cities like Los Angeles, San Francisco, Washington, Miami, and Houston, Texas. These markets have been particularly affected by the slowdown in home price growth and the increase in mortgage rates. In contrast, cities with more stable economies and labor markets, such as Boston and New York, have been more resilient.

According to Selma Hepp, chief economist at Cotality, “The future performance of highly leveraged loans will hinge on the strength of the US economy and labor market.” As the housing market continues to evolve, it is essential to closely monitor these loans and their potential impact on the overall economy. Despite the decline in equity, homeowners still have a collective net equity of $17.1 trillion for homes with a mortgage, providing a cushion against potential economic downturns.