Home equity values decline from a year ago

U.S. property owners saw home equity pull back in the second quarter as housing cost growth moderated, but while accrued amounts still sit near recent highs, the rise in underwater loans is raising concerns.

Homeowners lost an average of approximately $9,200 in equity on a year-over-year basis between April and June, according to the report from real estate data provider Cotality. The fall into the negative comes after full-year equity gains per household of $25,000 in 2023 and $4,500 in 2024.

The decline represented a fall of 0.8%, or $141.5 billion, to $17.5 trillion, the report said. Even with the latest quarterly pullback, homeowners are still seeing equity accrual near historic highs.

"The average borrower equity is approximately $307,000, representing the third-highest figure in recorded history and an increase of $124,000 compared to the first quarter of 2020 at the start of the pandemic," said Cotality Chief Economist Selma Hepp in a press release. 

At the same time, though, market conditions paint a mixed picture of the near-term road ahead, Hepp noted. 

"Home prices this year have experienced the slowest rate of growth since the Great Financial Crisis of 2008," she said, noting that not only does appreciation remain modest overall but depreciation exists in some markets.

Typical seasonal fluctuations will apply downward pressure on home equity value for the rest of 2025, but the second-quarter contraction also indicates households are leveraging available financing to draw on their gains, Cotality said. 

Underwater mortgages on the rise

Caution signs emerged in the growth of homeowners falling into negative equity positions, or underwater, when their total outstanding mortgage balance exceeds the value of the property.

Compared to the second quarter of 2024 when the share of underwater mortgages hit an all-time low, that metric increased from 1.7% to 2%, with the addition of 175,000 more homes in the category. Competition during the spring homebuying season that led to higher housing prices drove the underwater rate down 3.3% on a quarterly basis. 

Underwater mortgage trends coincide with higher delinquencies in some parts of the market this year, according to several research sources. Household economic concerns as well as the end of payment relief policies governing student loans contribute to recent stress. 

A fall in home price values of 5% over the next year would push another 242,000 borrowers underwater, but the same-sized increase could lead 144,000 homeowners back into positive equity territory, Cotality said.  

Wide regional variations appear

Despite the overall decline, mixed trends emerged regionally, with pronounced growth observed in the Northeast and Midwest, while most of the rest of the country saw decreased values. Thirty-two states experienced equity loss on a year-over-year basis.

Connecticut, New Jersey and Rhode Island posted the largest surges in home equity, gaining between $31,000 and $37,500. Meanwhile, several states in the West and South saw declines in the five-figure range. The nation's capital saw the largest loss of over $34,000, followed by Florida and Montana at $32,100 and $26,900.