Housing Market Shift Erases $13,400 in Average Homeowner Equity

2025-12-13 economy

New York, Saturday, 13 December 2025.
As property prices cool, the average U.S. homeowner lost $13,400 in equity over the past year, while negative equity cases surged by 21 percent to 1.2 million homes.

A Sharp Reversal in Fortunes

Following years of pandemic-fueled appreciation, the U.S. housing market has hit a significant inflection point as of the third quarter of 2025. According to data released on December 11, 2025, by real estate analytics firm Cotality, American homeowners collectively shed $373.8 billion in equity year-over-year, marking a 2.1% decline [1][2]. This contraction brings total net equity for mortgaged properties down to $17.1 trillion, a retreat from the peak of nearly $17.7 trillion recorded in the second quarter of 2024 [5][8]. The shift is particularly jarring when viewed against recent history; the average homeowner, who enjoyed an equity surge of $25,000 in 2023 and a modest $4,900 gain in 2024, has now faced an average loss of $13,400 over the past 12 months [1][5].

Regional Divergence: The Northeast Defies the Trend

The cooling effect is not distributed evenly across the national landscape, revealing a fractured market where geography dictates financial health. While over 60% of states posted equity declines, the Northeast has emerged as a stronghold of value retention [8]. Connecticut led the nation with average equity gains of $31,500, followed by New Jersey at $27,500 and Rhode Island at $16,200 [8]. Major metropolitan hubs including Boston, Chicago, and New York also remained in positive territory, bucking the national downturn [1]. Conversely, the markets that previously saw some of the most overheating are now leading the correction. Florida homeowners suffered the steepest average loss at $37,400, followed closely by the District of Columbia at $35,500 and California at $32,500 [2][5]. Other major cities experiencing significant equity erosion include Los Angeles, San Francisco, Miami, and Houston [1].

The Surge in Negative Equity

As values soften, a growing number of borrowers are finding themselves underwater, owing more on their mortgages than their homes are worth. The number of properties in negative equity jumped by 21% from a year ago, totaling 1.2 million homes as of the third quarter of 2025 [1][2]. This represents a year-over-year increase of approximately 216,000 households falling into this precarious financial position [5]. Dr. Selma Hepp, Chief Economist at Cotality, attributes this rise to affordability pressures that forced recent buyers to over-extend themselves. “Negative equity is on the rise, driven in part by affordability challenges that have led many first-time and lower-income buyers to over-leverage through piggyback loans or minimal down payments,” Hepp noted [2]. These “piggyback” arrangements often leave borrowers with little cushion to absorb even minor price corrections.

Economic Context and Outlook

This erosion of homeowner wealth coincides with a shifting monetary policy landscape. The Federal Reserve executed a quarter-point interest rate cut at its final meeting of 2025 in December, following similar reductions in September and October [3]. Despite these cuts, borrowing costs remain elevated compared to the pandemic era; as of December 10, 2025, the national average rate for a 5-year fixed home equity loan stood at 7.99% [3]. Looking ahead, the market remains fragile. Cotality projects that a further 5% decline in home prices would push an additional 319,000 homes into negative equity, while a 5% recovery could rescue 168,000 borrowers from being underwater [8]. With most forecasts predicting sluggish price growth of just 1% to 2% through 2026, the rapid equity accumulation of the early 2020s appears to be firmly in the rear-view mirror [8].

Sources

Real Estate Home Equity