Homeowner Equity Softens but Remains Strong as Housing Market Finds Balance

Homeowner equity across the United States cooled slightly at the end of 2025, signaling a housing market that is beginning to level out after years of rapid growth. While the share of equity-rich homes declined from recent highs, overall equity levels remain historically strong and continue to provide most homeowners with a solid financial buffer.

According to ATTOM’s Q4 2025 U.S. Home Equity & Underwater Report, 44.6% of mortgaged homes were considered equity-rich in the fourth quarter. That means nearly half of homeowners owed no more than half of what their homes were worth. The figure was down from 46.1% in the prior quarter and below the peak of 49.2% reached in mid-2024, marking the lowest share since late 2021.

Equity Pullback Reflects Market Stabilization

The recent decline does not point to distress. Instead, it reflects slower home price growth following the surge seen between 2019 and 2022. During that earlier period, rising values dramatically increased homeowner wealth while sharply reducing the number of borrowers who owed more than their homes were worth.

Even after the recent pullback, equity levels remain far above pre-pandemic norms. In early 2020, only about 26.5% of mortgaged homes were equity-rich, showing how much homeowner balance sheets have improved over the past several years.

Housing experts say the current trend points to a healthier market rather than a weakening one. With price growth slowing and borrowing costs higher than during the pandemic, equity is settling into a more stable range.

Equity Declines Spread Across Most States

From the third to the fourth quarter of 2025, equity-rich shares declined in 42 of 49 states, typically by less than two percentage points. On a year-over-year basis, equity also fell in 42 states.

The largest annual drops were recorded in:

• Florida, where the equity-rich share fell from 50.9% to 43.9%
• Kentucky, down from 38.5% to 32.1%
• South Carolina, down from 46.7% to 40.9%
• New Mexico, down from 49.6% to 44%
• Arizona, down from 50.9% to 45.4%

These declines often reflect markets where home prices rose sharply during the pandemic and have since cooled.

Some States Still See Equity Gains

Not all areas experienced declines. Several states, mainly in the Midwest and Northeast, saw small year-over-year gains in equity-rich properties.

The largest increases were found in:

• Alaska, rising from 31.5% to 33.5%
• North Dakota, up from 32.4% to 33.7%
• Illinois, increasing from 33% to 33.7%
• South Dakota, up slightly to 52.8%
• New York, rising to 55.4%

These gains suggest that slower price corrections and steady local demand are helping support homeowner equity in those regions.

Underwater Mortgages Remain Near Record Lows

Homes considered seriously underwater — where loan balances exceed home values by at least 25% — remained rare. Nationwide, the rate stood at 3.0% in Q4 2025, only slightly higher than the previous quarter and close to historic lows.

Some states made progress in reducing underwater shares, including:

• North Dakota
• South Dakota
• Wyoming
• Idaho

Meanwhile, higher underwater rates appeared in parts of the South and Mid-Atlantic, with increases seen in states such as Mississippi, Louisiana, Kentucky, Maryland, and the District of Columbia.

Even so, today’s underwater levels are far below those seen during the housing crash of 2008–2010.

Where Equity Is Strongest — and Weakest

States with the highest equity-rich shares were mostly located in the Northeast and West. Vermont stood out with nearly 87% of mortgaged homes classified as equity-rich, followed by New Hampshire, Rhode Island, Maine, and Montana.

At the other end of the scale were states such as Louisiana, Maryland, Kentucky, and Iowa, where equity-rich shares remained below one-third of mortgaged homes.

At the county level, many of the most equity-heavy areas were concentrated in the Midwest, particularly in Michigan and Wisconsin. Some counties reported equity-rich shares above 90%, while counties with the lowest shares were largely located in the South.

ZIP Code Data Shows Localized Risk

Out of more than 9,000 ZIP codes analyzed, nearly one-third had at least half of their mortgaged homes classified as equity-rich. California and Massachusetts accounted for a large portion of the top-ranking ZIP codes.

Only 2.8% of ZIP codes had more than 10% of homes that were seriously underwater, showing that negative equity remains highly concentrated rather than widespread.

What the Data Means Going Forward

The latest data suggests the housing market is moving into a calmer phase after years of sharp gains. Equity remains strong enough to protect most homeowners from price dips, even as affordability challenges persist for buyers.

With fewer extreme swings in prices, equity trends may continue to normalize in 2026. That could support a more balanced housing market, where homeowners remain financially secure while buyers face less pressure from runaway prices.

In short, homeowner equity may no longer be rising at record speed but it is still providing a strong foundation for the U.S. housing market. For direct financing consultations or mortgage options for you visit 👉 Nadlan Capital Group.