Understanding Homeowner Equity

You may see media coverage talking about a drop in homeowner equity. What’s important to understand is that equity is tied closely to home values. So, when home prices appreciate, you can expect equity to grow. And when home prices decline, equity does too. Here’s how this has played out recently. 

If you’re like most American homeowners, your home gained value during the “unicorn” years (2021-mid 2022). This means you could now be sitting on a large amount of home equity that gave homeowners a considerable equity boost. But those ‘unicorn’ years couldn’t last forever. The market had to moderate at some point, and that’s what we saw last fall and winter. 

As home prices dropped slightly in the back half of 2022, equity was impacted. Based on the most recent report from CoreLogic, there was a 0.7% dip in homeowner equity over the last year. However, the headlines reporting on that change aren’t painting the whole picture. The reality is, while home price depreciation during the second half of last year caused equity to drop, the data shows homeowners still have near record amounts of equity. 

The graph below helps illustrate this point by looking at the total amount of tappable equity in this country going all the way back to 2005. Tappable equity is the amount of equity available for homeowners to access before hitting a maximum 80% loan-to-value ratio (LTV). As the data shows, there was a significant equity boost during the ‘unicorn’ years as home prices rapidly appreciated (see the pink in the graph below). 

But here’s what’s key to realize – even though there’s been a small dip, total homeowner equity is still much higher than it was before the ‘unicorn’ years.

Other factors that contribute to home equity include paying down your mortgage and improvements to your home. When making home improvements, calculate your return on investment and make choices that won’t become outdated quickly or hard for future owners to design around is the best way to get started.