Homeowners retrench as buyer behavior shifts | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

Homeowners across the U.S. are starting to see their pandemic-era equity cushion shrink, with average paper losses in the five‑figure range as prices cool or slip in many markets.

You’re still likely sitting on a big equity buffer, but if you bought recently or stretched to get in, weakening prices can erase thousands in wealth much faster than you built it.

What’s happening to home equity

After several years where it felt like your house gained more than your salary, home prices have either flattened or turned negative in many parts of the country in 2025. A recent housing report cited by CNBC found that more than half of U.S. homes lost value over the past year, the highest share since the recovery period after the Great Recession.

According to a new equity report from data firm Cotality (similar to CoreLogic), borrower equity fell by about 2% year over year in the latest quarter, a drop of $373.8 billion in paper wealth for mortgaged homeowners.

On a per‑household basis, that translates into roughly $13,400 in lost equity for the typical owner over 12 months.

How much equity homeowners are losing

Different data sets tell the same story: Equity is no longer sprinting higher — and in a lot of places, it’s slipping. Cotality’s fall 2025 report says the average homeowner with a mortgage now has about $299,000 in equity, but that’s down roughly $13,400 from the prior year.

Earlier in 2025, another report reviewed by MortgagePoint pegged the year‑over‑year equity loss at around $4,200, representing a big reversal from the $30,000‑plus gains homeowners were seeing just a year prior.

Put simply: If your home was worth $500,000 and you owed $300,000, you had $200,000 in equity; a 3% price drop knocks $15,000 off that number immediately.

That’s close to what the national averages are showing — mid‑four‑figure to low‑five‑figure equity declines over the past year, depending on when you start the clock.

Where home prices are weakening the most

The equity story is very regional. According to Cotality’s latest breakdown, 32 states saw annual equity losses, with the steepest drops in Florida (about $37,000 lost on average), the District of Columbia (around $35,500), and California (about $32,500).

Earlier in the year, Cotality also flagged broad weakness across Southern markets, especially Texas and Florida, where affordability pressures, rising insurance costs, and climate‑driven risks are weighing on values.

On the flip side, some Northeast markets are still quietly building equity. Cotality found that homeowners in Connecticut, New Jersey, and Rhode Island actually gained between roughly $16,000 and $31,500 in the past year, though even those gains are smaller than in prior quarters.

More Real Estate:

Other reports show similar patterns, Homes for Heroes shared.

Many Sun Belt markets that boomed during the pandemic are now giving back some of those gains, while older, supply‑constrained metros including Boston, New York, and Chicago are holding up better.

Why homeowners are losing equity

Homeowners aren’t losing equity because they did anything wrong; the market context simply shifted underneath them. Several forces are working together:

Post‑pandemic comedown: After national home prices surged roughly 50% or more over five years, some cooling was almost inevitable. Even a modest pullback looks painful because it follows such extreme gains.
High mortgage rates: Elevated rates have frozen the market, reducing bidding wars and forcing sellers to accept lower prices or sit longer. Slower price growth directly caps your equity gains.
Affordability and over‑leveraging: Cotality Chief Economist Selma Hepp noted that negative equity is rising in part because affordability pressures pushed some first‑time and lower‑income buyers into “over‑leveraging” with tiny down payments and piggyback loans, MortgagePoint reported. When homebuyers start with almost no cushion, even a small price drop can push them underwater.
Insurance, taxes, and climate risk: In parts of the South — especially coastal Florida and disaster‑prone areas — rising insurance premiums, higher property taxes, and repeated storms or wildfires are starting to be priced into home values. Those higher carrying costs reduce what new buyers can pay, which drags down prices and, in turn, your equity.

Homeowners most at risk right now

Not every homeowner feels this trend equally. Those most vulnerable to equity losses are ones who:

Bought in 2023-2025 with a down payment under 10% in a market that’s now cooling or declining.
Used a piggyback second mortgage or HELOC to avoid private mortgage insurance, meaning they have higher total leverage on the property.
Live in a state that’s seeing the biggest equity declines — recent data points to Florida, California, and the District of Columbia, among others.
Have already tapped their equity aggressively through cash‑out refinances or home equity loans, leaving a smaller buffer between their debt and their home’s value.

If that sounds like you and you’d need to sell in the next couple of years, whether for a job move, divorce, or downsizing, weakening prices can quickly turn a modest cushion into break‑even, or even a loss after transaction costs.

What negative equity actually means

Negative equity (being “underwater”) simply means you owe more on your mortgage than your home is currently worth.

Recent reports suggest about 1.2 million homes are now in negative equity, up roughly 21% from a year earlier, representing a small but growing slice of the market. In percentage terms, that’s roughly 2% to 3% of mortgaged homes, depending on the data source and quarter.

You can still live in your home and make payments in this situation; the main issue is reduced flexibility. Selling could mean bringing cash to closing, and refinancing or moving to a new home becomes much harder when you don’t have equity to roll into the next purchase.

How home equity loss hits your broader financial plan

For most households, home equity is the single biggest asset on the balance sheet. When that number falls:

Your net worth shrinks on paper, which can change the risk you’re comfortable taking in other parts of your portfolio.
Your ability to tap equity for renovations, tuition, or debt consolidation is reduced, or it becomes more expensive.
You may be tempted to chase yield in riskier investments to “make up” for lost housing wealth — something financial planners warn against after any big asset‑price shift.

At the same time, experts from J.P. Morgan see more of a “slow‑growth” or “sideways” housing market ahead, not a 2008‑style crash, thanks to tight supply and generally stronger homeowner balance sheets.

That means for patient homeowners, this looks more like a reset than a collapse.

Steps you can take to protect your home’s value

You can’t control national home prices, but you can manage your exposure and keep your options open:

Know your equity number: Use a conservative home value (not the most optimistic estimate from online tools) and subtract what you owe on all mortgages and HELOCs. If you’re under 10% to 15% equity, treat that as a yellow flag.
Avoid unnecessary cash‑out moves: With prices wobbling, think twice before pulling equity for nonessential spending; more debt reduces your cushion if prices fall further.
Build a cash buffer: Emergency savings make it easier to ride out market dips without being forced to sell in a down market.
Time your sale if you can: If your local market is soft and you’re not compelled to move, waiting a year or two could help. Several forecasts call for modest price growth (around the low single digits annually) rather than deep declines.
Invest in value, not just cosmetics: Projects that boost long‑term value — fixing a leaky roof, improving energy efficiency, updating outdated systems — can support your resale price more than purely aesthetic upgrades.
Talk to a local pro: A seasoned agent or fee‑only planner can help you understand neighborhood‑level price trends that national averages often miss.

What this means for your next home sale

If you’re already a homeowner, this phase is about defense and patience: Protect your equity, keep your housing costs manageable, and avoid panic selling in a soft market.

If you’re a would‑be buyer, weakening prices and rising inventory in some areas can finally tilt a bit of power back toward you, especially if you’re bringing a solid down payment and a stable income to the table.

Home equity isn’t just a number on a spreadsheet; it’s a key part of your safety net and your long‑term wealth plan. Staying honest about where your equity stands, how your local market is shifting, and what levers you can pull today can help you navigate this new phase without letting a temporary price reset derail your bigger financial goals.