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You’ve been hearing a lot about home equity lately for one big reason: There’s a lot more of it. As home prices boomed throughout the pandemic, many homeowners enjoyed some massive appreciation in the size and worth of their ownership stake in their properties.
However, what goes up must come down: In the beginning of 2023, the housing market began to slow, and the value of home equity among mortgage-holding homeowners actually declined slightly for the first time in a decade. Even so, the average U.S. homeowner now possesses more than $274,000 in equity — up significantly from $182,000 before the pandemic, according to CoreLogic, a consultancy that tracks real estate and property data.
Let’s delve more deeply into home equity data and why it’s significant to anyone who owns a home.
- Anyone who owns a home has equity in it — it's the portion of the property that you own outright, as opposed to being financed.
- Your home equity percentage increases as you pay down your mortgage. It can also rise if the home's worth increases, due to improvements you make or a general uptick in local property values.
- Negative equity means you owe more on your home than it's worth, which is problematic if you want to sell, refinance or borrow against your ownership stake.
Why is home equity important?
Home equity refers to the portion of your property that you own outright, free and clear of any debt (“equity” being financial lingo for “ownership”). Anyone who owns a home — whether purchased with cash or financed with a mortgage— has some level of equity in it. If you paid for your place all in cash or have paid off your mortgage entirely, you have 100 percent equity. Conversely, if you made a 20 percent down payment and borrowed all the rest for the purchase, you have only 20 percent equity at the start.
If your mortgage is still outstanding, your 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’s worth for $300,000, you’d have $250,000 in equity, approximately.
Every time you make a mortgage payment, you are chipping away at the principal balance, and are increasing your equity. Additionally, your equity increases when your property’s value rises, whether through making enhancements like a remodeled kitchen or via a natural uptick in housing values in your area. (That’s why real estate is considered a wealth-building asset.)
Understanding how much home equity you have can give you a rough idea of how much of the sales proceeds you’ll receive if you decide to sell the property (after you pay off your mortgage and transaction costs, of course). You can also borrow against your equity stake with a home equity loan or a line of credit (HELOC). These products can help you pay for large expenses — they’re particularly popular to pay for home repairs and renovations — at a relatively lower interest rate compared to other forms of financing.
Home equity key terms
- Home equity
- The difference between how much your house is worth and how much you still owe on your mortgage. For example, if your house is worth $500,000, and you still owe $100,000, you have $400,000 of equity.
- Home equity loan
- A fixed-rate, lump-sum loan using your home as collateral, also known as a second mortgage. Requirements vary among lenders, but they typically only allow you to borrow up to a maximum of 85 percent of the home's value (including the amount owed on your first mortgage).
- Home equity line of credit (HELOC)
- Another way of borrowing against your home equity that uses your home as collateral. Rather than a lump sum of money, it offers a revolving credit line (like on a credit card) that you can draw funds from as you need them, at a variable rate. As the Federal Reserve adjusts its benchmark rate, HELOC rates move up and down, too.
- Negative equity
- The status of a homeowner whose outstanding mortgage debt is larger than the property's current worth. For example, if your house's fair market value is $300,000, but you owe your lender $310,000, you have negative equity.
2023 homeowner equity data and statistics
The value of home equity is affected by changes in home prices, and so tracks the ups and downs of the residential real estate market.
- The home equity stake of the average American homeowner with a mortgage is worth just over $274,000, as of the first quarter of 2023.
- In Q1 2023, the average homeowner lost $5,400 of home equity versus the first quarter of 2022. This 0.7% loss is the first year-over-year decline since 2012.
- Homeowners in Hawaii, Florida and Rhode Island enjoyed the largest year-over-year home equity gains. All posted average increases of more than $23,000.
- Some 13 states suffered losses in home equity year-over-year. Western states posted the largest annual home equity losses: Washington (-$74,300), California (-$59,600) and Utah (-$37,700).
- At $336.7 billion, the national aggregate value of negative equity is up 11.5% year-over-year as of Q1 2023.
- The number of underwater mortgages increased by 4 percent year-over-year in Q1 2023.
- Home equity lending continues to be popular: home equity loan originations grew 47% year-over-year in 2022, and HELOC originations grew 41%.¹
Sources: CoreLogic “Homeowner Equity Insights – Q1 2023”; ¹TransUnion Q4 2022 Credit Industry Insights Report
Home equity over the past 5 years
To understand how home equity has changed over the past five years, consider the median price of a home in the first quarter of 2018: $240,000, according to ATTOM Data Solutions. By the first quarter of 2023, the median price had jumped to just over $321,000. Though off the highs of $350,000+ in Q1 2022, that’s still a significant increase.
While home equity levels have declined nationally overall, there are still certain spots in the country where homeowners continue to see large gains in their equity levels. Between Q1 2022 and Q1 2023, here are where the biggest equity increases occurred based on CoreLogic’s research:
- Florida, Hawaii – $25,000
- Rhode Island – $24,000
- Maine – $23,000
- New Jersey – $22,000
- Connecticut – $20,000
- South Carolina, Indiana – $17,000
What increases home equity?
Here are three ways to boost your home’s equity:
1. Continue making monthly mortgage payments
Every time you make a mortgage payment, you chip away at your debt. While part of that payment goes toward interest, the amount that goes toward principal translates to an increase in equity. And a greater percentage of your payments goes towards principal each year.
2. Make home improvements
3. Consider where you live
Your home’s equity can also increase without your intervention. As certain neighborhoods, cities and regions become more attractive, homeowners who already live there benefit, as the surge in interest and purchases elevates asking prices and property values in general.
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 loan balance of $250,000 and your home appraises for $235,000, you’d have negative equity.
If you decided to sell the property, you wouldn’t make enough from the deal to pay off your mortgage. In fact, it would actually cost you money: Since you owe more than the home is worth, you would have to make up the difference and pay your lender back at the closing.
Refinancing with negative equity is also a problem, because lenders usually won’t let you take out a new loan without any equity in your home. And forget about home equity loans or HELOCs: You can’t borrow against a non-existent stake. Instead, you may need to wait until your home value increases or until you’ve re-paid enough of your mortgage to reach positive equity again.
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. Between Q1 2022 and Q1 2023, an additional 50,000 mortgaged properties crossed into negative equity territory, according to CoreLogic. Louisiana, Iowa and Oklahoma have the highest percentage of upside homes in the country.
Final word on home equity facts
The potential to build home equity is one of the primary reasons homeownership is so attractive to so many. Handing over rent money to a landlord every month does nothing to build your long-term wealth, but making monthly mortgage payments to a lender allows you to acquire an asset. While the pandemic created serious challenges, the silver lining for anyone who owned a home was the sizable equity gain. Understanding how home equity works, and how to leverage it, is important for any homeowner.