Soaring home prices that occurred earlier this decade also gave a massive boost to home equity in the United States, but lately the opposite is happening in many markets.
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The average U.S. homeowner lost roughly $4,200 in equity between the first quarter of 2024 and the first quarter of 2025, according to a new study from Cotality, a provider of global property information, analytics and solutions.
That represents a “significant” loss when compared to the $4,300 in equity that homeowners gained year-over-year in Q4 2024. It also marks a big reversal from the nearly $30,000 annual increase homeowners enjoyed in 2023 through early 2024.
An End to Post-COVID Price Surge?
Major cities experiencing the biggest equity losses over the past year include Denver, Houston, Miami and Washington, D.C. These are also among the cities that enjoyed rapid price and equity appreciation during the 2000-2023 housing boom.
The home equity gains experienced earlier in the decade were due to “strong home price appreciation” following the COVID-19 pandemic, according to Cotality Chief Economist Dr. Selma Hepp. At the peak of those gains, annual equity increases rose to as much as $55,000.
“However, with price increases slowing considerably and appreciation remaining sluggish, home equity is unlikely to accumulate at the same pace as it did during the pandemic, or even pre-pandemic, when annual gains averaged about $11,000,” Hepp said in a June 12 press release.
Underwater Homes Creep Higher
The recent decline in home equity isn’t just due to moderating home prices and values. It also has been driven by homeowners tapping into their equity to finance other activities, Hepp added.
Meanwhile, a rising number of homeowners are now underwater on their mortgages, meaning they owe more on their loans than their properties are worth.
During the 2025 first quarter, the number of underwater homes increased by 17% from the previous year to 2.1%, according to Cotality. That’s lower than the pre-pandemic total of 3.6%, but it’s still a worrying trend.
The problem of underwater mortgages is particularly acute in pandemic boomtowns such as Austin, Texas, and Cape Coral, Florida, the Wall Street Journal recently reported. Some homeowners who bought during the market peak have seen home values sink by 20% or more since then.
What To Do About Declining Equity
Although it’s impossible to control market forces that lead to general declines in home prices and equity, there are things you can do to enhance your home’s value. Here are some of the best steps you can take:
- Invest in upgrades. Making your home stand out from the rest is the surest way to improve its value. This could mean installing modern blinds, buying high-end appliances and investing in app-based security systems, voice-controlled infrastructure and smart HVAC systems.
- Renovate big-ticket items. Spending money on a new roof or HVAC system can get pricey, but doing so will also kick your home’s value up considerably. Potential buyers are willing to pay a premium if they know they won’t have to worry about big-ticket repairs or improvements for the next decade or so.
- Add usable space. Another way to enhance your home’s value is to add space for offices, playrooms or homeschooling rooms. The best (and cheapest) way to do this is to convert formal dining rooms, attics or basements into useful spaces.
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This article originally appeared on GOBankingRates.com: Typical Homeowner Lost $4k In Equity Since Last Year — What Can They Do About It?
