Home Equity on the Rise for American Homeowners

For the millions of Americans who own their homes, their properties are typically their biggest source of wealth. The good news? Those assets have grown in value over the past year thanks to rising home prices.

The typical American homeowner saw their home equity rise by $20,000, or 6.8%, through the end of the third quarter compared with a year earlier, according to a new analysis from real estate data firm CoreLogic.

Despite a fierce headwind in the form of the highest mortgage rates in two decades, average home prices have jumped about 9% this year, according to the National Association of Realtors. That has boosted the value of homeowners' equity, or the difference between how much a home is worth and the remaining amount due on a mortgage.

Home equity is a key to building wealth because it can provide a property owner with a way to tap the value of their home, such as through a home-equity line of credit. And when they sell their home, the property owner will pocket more money after paying off their mortgage.

"Home equity growth is driven by home price growth, and so we have had a lot of growth this year, considering everything else that is going on in the housing market," a leading economist said.

"When people have more equity in their homes, they feel wealthier," the economist added.

Building home equity also provides a buffer in event of financial emergencies and gives owners another source of assets to draw on when major expenses arise, such as paying for college or making home repairs.

While the typical homeowner in most U.S. states saw their equity jump this year, property owners in some parts of the country lost ground, according to a recent study. 

Property owners in one state on average lost about $9,000 in home equity compared with a year ago, the study found. 

The reason, the economist said, is partly due to softness in the local real estate market, which saw a huge run-up in prices during the pandemic. Even with the dip, homeowners continue to have significant equity in their properties, at an average of $217,000 each, the study noted. 

Two other states saw home equity declines during the past year: one state, where equity fell $7,525) on average, and another state (a loss of $873). Even so, homeowners in those two states have average equity of $364,000 and $348,000, respectively.