Homeowners are losing thousands in equity thanks to weak prices

Home values ​​have been losing ground for much of this year, with previous huge annual gains shrinking to nothing. The result is that homeowners lose their equity.

Borrowers’ equity fell by 2.1% in the third quarter of this year compared to the same period last year, or $373.8 billion, according to a report by Cotality. This comes after years of sharp gains in record home and stock prices. Even after this decline, homeowners still have a collective net equity of $17.1 trillion in homes with mortgages.

For the average homeowner, a decline in equity in the third quarter translates into a loss of $13,400. In addition, the number of homes with negative equity status, meaning they are worth less than the mortgage on them, rose 21% from last year to 1.2 million.

“As the pace of house price growth slows and markets reset from the height of the pandemic, we are seeing a clear shift in equity trends,” said Selma Heap, chief economist at Cotality. “Negative equity is on the rise, in part because affordability challenges have pushed many first-time and low-income buyers to become over-leveraged with delinquent loans or minimal down payments.”

Those with a negative equity position likely bought their homes recently, when mortgage rates were higher and prices peaked. Homeowners have also pulled more equity out of their homes, thanks to huge gains in the past five years.

Home values ​​are now about 52% higher than they were in January 2020, according to the S&P Cotality Case-Shiller National Home Price Index. Even after mortgage rates increase in 2023, the average equity gain per homeowner is $25,000. In 2024, the price is $4,900.

However, not all markets experience the same dynamic. Boston, Chicago and New York all remain positive, according to the Qoty report. The largest losses were in Los Angeles, San Francisco, Washington, Miami and Houston, Texas.

“The future performance of highly leveraged loans will depend on the strength of the US economy and labor market,” Hipp said. “Even as expectations remain of continued high rates and economic resilience, it remains essential to monitor these loans closely in the coming months.”