You’ve been hearing a lot about home equity lately for one big reason: There’s a lot more of it. In fact, in the second quarter of 2022, the average level of equity for homeowners with mortgages hit nearly $300,000, according to CoreLogic. That’s because home prices have escalated in recent years, spurred on by the pandemic housing boom, among other factors.

Key takeaways
  • What: Home equity is the difference between how much your house is worth and how much you have left to pay on your mortgage. If you still owed your mortgage lender $50,000, say, and your home appraised for $300,000, you’d have $250,000 in equity.
  • Who: Anyone who owns property — whether purchased with cash, or still paying or having paid off the mortgage tied to it — has some level of equity. That’s why real estate is considered a wealth-building asset.
  • Why it matters: Understanding how much home equity you have can give you an idea of your profit potential if you decide to sell the property. You can also borrow against your equity with a home equity loan or a line of credit (HELOC). This can help you pay for large expenses, such as a renovation, at a relatively lower interest rate compared to other forms of financing.

Home equity data and statistics

  • The eye-popping gains in home equity are starting to come down as the housing market resets. As of the third quarter of 2022, collective equity among homeowners in the U.S. declined by $1.3 trillion, according to Black Knight.
  • Still, the average homeowner with a mortgage has gained $92,000 in equity since the beginning of the pandemic, Black Knight reports. At the same time, home values in the country’s 50 largest metro areas have increased by between 19 percent and 66 percent.
  • Homeowners in Hawaii gained the most home equity over the past year, according to CoreLogic, at an average of $130,000.
  • HELOC and home equity loan originations increased by 47 percent over the first five months of 2022, according to an analysis by the Urban Institute.
  • Less than 500,000 homes had mortgages that are underwater or upside down as of Sept. 2022, according to Black Knight.

Home equity over the past five years

Home equity levels have been on a steady path upward in recent years. The shortage of housing inventory contributed to rising home prices between 2017 and 2019, but the pandemic kicked those values into unprecedented overdrive. In March 2020, the median price of an existing home in the U.S. was $280,600, according to the National Association of Realtors. By October of 2022, that figure had climbed to more than $379,000.

In the last year, homeowners in certain parts of the country have been especially big winners, according to CoreLogic:

  • Hawaii – $130,000
  • California – $117,000
  • Florida – $100,000
  • Arizona – $89,000
  • Nevada, Washington – $82,000
  • Colorado – $76,000
  • Utah – $71,000

What increases home equity?

Here are three key ways to boost your home’s equity:

1. Continue making monthly mortgage payments

Every time you make a mortgage payment, you chip away at the principal balance. While part of that amount goes toward interest, the amount that goes toward principal translates to an increase in equity. If you can make biweekly mortgage payments or an extra payment each year, you’ll accelerate your equity-building efforts.

2. Complete home improvements

Upgrading your home — such as remodeling the kitchen or adding an in-law suite — often translates to an increase in value.

3. Consider where you live

Your home’s equity can also increase without your intervention. As certain neighborhoods and cities become more attractive, homeowners who already live there benefit from that surge in interest.

What is negative equity?

Homeowners have negative equity — also known as being underwater or upside down — when they owe more on their mortgage than their home is worth.For example, if you had an outstanding mortgage balance of $200,000 and your home appraised for $185,000, you’d have negative equity. If you decided to sell the property, you likely wouldn’t make enough from the deal to pay off your mortgage.Negative equity isn’t a common issue these days thanks to the huge growth in home values. However, it’s important to note the housing market is cooling off, and there has been an uptick in the number of underwater homeowners in recent months: about 275,000 more since May of this year, according to Black Knight

Bottom line

The potential to build home equity is one of the primary reasons homeownership is so attractive to so many: Rather than handing over rent money to a landlord every month, paying off a mortgage allows you to build wealth. While the pandemic created serious challenges, the silver lining for anyone who owned a home was the sizable equity gain.