A cluster of new homes is visible along Boulder City Parkway on January 11, 2022 in Henderson, Nevada.
George Rose | Getty Images
Home prices have been trending downward for much of this year, with previously huge annual gains now down to zero. As a result, homeowners are losing capital.
Borrower capital in the third quarter of this year decreased by 2.1% year-on-year, or a total of $373.8 billion, according to a Kotality report. This comes after years of skyrocketing home prices and record stock prices. Even after the decline, homeowners still have $17.1 trillion in total net equity in their mortgaged homes.
For the average homeowner, a drop in stocks in the third quarter equates to a loss of $13,400. Additionally, the number of homes with negative equity, or less than their mortgage value, rose 21% from a year ago to 1.2 million.
“We’re seeing a clear shift in equity trends as the pace of home price growth slows and the market recalibrates from the peak of the pandemic,” said Thelma Hepp, chief economist at Kotality. “Negative equity is on the rise, in part due to affordability challenges that have left many first-time buyers and low-income buyers overleveraged with piggyback loans and minimal down payments.”
People with negative equity are more likely to have bought a home when mortgage rates were rising and prices were at their peak. Thanks to significant gains over the past five years, homeowners are extracting more equity from their homes.
Home prices are currently up about 52% compared to January 2020, according to the S&P Kotality Case-Shiller National Home Price Index. Even after mortgage rates rose in 2023, the average equity return per homeowner was $25,000. In 2024, it was $4,900.
However, the situation is not the same in all markets. Boston, Chicago and New York all remain in a positive position, according to Kotality’s report. The biggest losses were in Los Angeles, San Francisco, Washington, Miami, and Houston, Texas.
“The future performance of highly leveraged loans will depend on the strength of the U.S. economy and labor market,” Hepp said. “Even though expectations for continued price growth and economic resilience persist, it remains important to monitor these loans closely in the coming months.”
