Falling Home Prices Are Cutting Into Homeowner Equity Across the U.S.

After years of strong price growth, U.S. homeowners are starting to see their home equity slip. As home values cool across much of the country, the rapid gains seen during the pandemic housing boom have slowed or disappeared altogether.

New data from Cotality shows that borrower equity declined 2.1% in the third quarter compared with the same period last year. That drop equals a total loss of $373.8 billion in homeowner equity nationwide.

What the Decline Means for Homeowners

For the average homeowner, the decrease translated to a loss of about $13,400 in equity during the third quarter. While that is a noticeable hit, it comes after several years of record growth.

Even with the recent decline, homeowners with mortgages still hold a combined $17.1 trillion in net equity, showing that most owners remain in a strong position overall.

Negative Equity Is Rising

One growing concern is the increase in negative equity, which occurs when a home is worth less than the remaining mortgage balance.

According to the report:

• The number of homes with negative equity rose 21% year over year
• About 1.2 million homeowners are now underwater on their mortgages

These homeowners are often recent buyers who purchased near market peaks and faced higher mortgage rates.

Why Equity Is Slipping Now

Cotality Chief Economist Selma Hepp said the shift reflects a market adjusting after extreme gains.

“As home price growth slows and markets reset from pandemic highs, equity trends are changing,” Hepp said.
She added that affordability pressures pushed many first-time and lower-income buyers to use small down payments or piggyback loans, leaving them more exposed when prices soften.

Homeowners have also tapped into their equity more over the past few years, using cash-out refinances and home equity loans while values were rising.

Long-Term Gains Still Matter

Despite the recent pullback, home values remain far higher than before the pandemic.

According to the S&P Cotality Case-Shiller Index, home prices are still about 52% higher than in January 2020. Even after rates rose sharply in 2023:

• Average equity gains per homeowner were $25,000 in 2023
• Gains slowed to $4,900 in 2024

This shows how quickly equity growth has cooled but also how much was built up beforehand.

Equity Trends Vary by Market

Not all cities are seeing losses. Some large metro areas are still posting gains:

• Boston
• Chicago
• New York

However, other markets have experienced sharper declines, including:

• Los Angeles
• San Francisco
• Washington, D.C.
• Miami
• Houston

Markets that saw the biggest price surges during the pandemic are now seeing more pressure as demand eases and affordability remains tight.

What to Watch Going Forward

Hepp noted that the outlook for highly leveraged homeowners depends heavily on the broader economy.

“The performance of these loans will depend on job growth and economic strength,” she said.
Even if prices stabilize, close monitoring is needed especially for borrowers who bought recently with limited equity.

Bottom Line

Homeowners are giving back some of the equity they gained during the housing boom, but most still remain well ahead compared with pre-pandemic levels. While the rise in negative equity is worth watching, widespread distress is not yet evident.

As the housing market continues to rebalance, equity trends will likely depend on price stability, interest rates, and the strength of the labor market in the months ahead. For direct financing consultations or mortgage options for you visit 👉 Nadlan Capital Group.