Remember when pretty much everyone you knew was bragging about how much their house had gone up in value? Yeah, those days feel a little distant right now.
I opened my property tax appraisal the other day and actually laughed out loud, because for the first time in years the number was lower than last year. Turns out I’m far from alone. New numbers show the average American homeowner just lost more than thirteen thousand dollars in equity compared to a year ago. And for some people, it’s a whole lot worse than that.
The Great Equity Reset Is Actually Happening
After years of watching home values climb like they were on rocket fuel, the air is finally coming out of the balloon. The latest data reveals borrower equity dropped 2.1 % year-over-year in the third quarter alone. That’s $373.8 billion gone, poof, across the country.
To make it hit home (pun intended), the typical homeowner is now sitting on roughly $13,400 less equity than they were twelve months ago. After a half-decade of feeling like accidental millionaires, a lot of us are getting a rather rude wake-up call.
Don’t get me wrong, most people are still way ahead of where they were in 2020. Home values are still more than 50 % higher than pre-pandemic levels nationally. But the speed at which the gains are evaporating has caught a lot of owners off guard.
Negative Equity Is Creeping Back
Perhaps the most worrying part? The number of homeowners who are underwater again, owing more than their house is worth, jumped 21 % in just one year. We’re talking about 1.2 million households right now.
These aren’t the subprime borrowers from 2008 either. Many are first-time buyers who stretched thin over the last couple of years when rates spiked and prices were at all-time highs. A 3 % down payment felt genius when values were climbing 15 % a year. Not so much when the market flattens or dips.
“We’re seeing a clear shift in equity trends as the market recalibrates from pandemic peaks. Negative equity is on the rise, especially among buyers who used minimal down payments or piggyback loans to get in.”
– Chief Economist at a major housing analytics firm
The Cities Where Equity Is Disappearing Fastest
Not every market is moving in lockstep, which honestly makes the whole situation more fascinating.
Some of the biggest losers are places that saw the wildest run-ups. Think coastal California, South Florida, and a few other usual suspects. Los Angeles and San Francisco owners watched billions vanish practically overnight. Miami, Houston, and Washington D.C. aren’t far behind.
On the flip side, a handful of markets are still hanging tough. Boston, Chicago, and New York City actually posted equity gains over the same period. Go figure.
- Biggest equity bleeders: Los Angeles, San Francisco, Miami, Houston, Washington D.C.
- Still in the green: Boston, Chicago, New York City
- Mixed bag: Most of the Sun Belt that boomed in 2021-2022 is now giving back gains
Why This Feels So Much Worse Than It Looks on Paper
Here’s the thing nobody really talks about: a lot of homeowners were treating that paper equity like an ATM. Cash-out refinances and home-equity lines of credit exploded when rates were rock-bottom. Many people pulled money out to renovate, pay off debt, or even buy investment properties and cars.
Now the house is worth less, but the debt is still there. That’s a double punch that can turn a modest price correction into genuine financial stress.
I’ve spoken with more than one person who refinanced at 7 % last year thinking “it’s fine, the house is up another $150k.” Guess who isn’t laughing now?
What History Tells Us About Corrections Like This
Corrections aren’t crashes, at least not yet. The 2008 meltdown was driven by bad loans blowing up and forced sales flooding the market. Today the lending standards are much tighter and unemployment remains low.
That doesn’t mean we’re in the clear. If job losses pick up or rates stay high longer than expected, those 1.2 million underwater homeowners could become a much bigger number pretty fast.
In my experience, markets rarely move in straight lines. The same cities that shot up the fastest tend to give back gains aggressively when sentiment shifts. We saw it in 2007, we saw mini-versions in 2018 and 2022. The pattern feels eerily familiar.
Should You Panic-Sell? Probably Not
If you plan to stay in your home another five to ten years, short-term equity swings matter a lot less than people think. Real estate has always been cyclical. The people who get burned are usually the ones who over-leveraged or need to move sooner than planned.
- Can you comfortably afford the payment? Keep the house.
- Did you buy with a tiny down payment in 2022-2023 and now need to relocate? That’s a tougher conversation.
- Are you thinking of tapping equity again? Maybe pump the brakes for a minute.
The Bottom Line for 2025 and Beyond
We’re moving from a period of irrational exuberance to something that looks a lot more like a normal housing market. Prices probably aren’t going to zero, but the days of guaranteed 10-15 % annual gains are behind us for now.
For buyers sitting on the sidelines, this equity reset could actually create opportunity, especially if mortgage rates ease a bit next year. For current owners, it’s a reminder that trees don’t grow to the sky and sometimes the smartest move is simply doing nothing.
One thing I know for sure, the next couple of years in real estate are going to be a lot more interesting than the last five. And interesting usually means opportunity for someone. The question is whether you’ll be ready when your moment arrives.
So tell me in the comments, have you checked your home value lately? Did the number make you smile or reach for the antacid? Either way, you’re not alone.
