U.S. homeowners saw a notable erosion of the wealth gains accumulated during the pandemic housing boom as cooling home prices and rising leverage weighed on equity levels in 2025, according to a new report from property data firm Cotality.
In its third-quarter Homeowner Equity Report, Cotality found that total borrower equity in mortgaged homes declined by $373.8 billion year over year, a drop of 2.1%, bringing aggregate net equity down to $17.1 trillion. Although this figure remains historically high, it represents a clear pullback from the peak of nearly $17.7 trillion recorded in the second quarter of 2024. Since then, homeowner equity has fluctuated as the housing market adjusts to slower price growth following years of rapid appreciation.
Cotality Chief Economist Selma Hepp described the shift as part of a broader market recalibration. As home price growth moderates and affordability pressures remain elevated, equity trends are changing, particularly for more recent buyers who entered the market with smaller down payments or layered financing structures. These borrowers are more exposed to price softening and rising leverage.
The decline follows several years of exceptional equity growth. Homeowners gained an average of about $25,000 in equity in 2023 and an additional $4,900 in 2024. Over the past year, however, the trend reversed, with the average homeowner losing roughly $13,400 in equity. Regional price corrections, combined with higher levels of equity extraction and borrowing among newer homeowners, have contributed to the downturn.
As a result, loan-to-value (LTV) ratios have been rising nationwide. Cotality reported an increase in the share of borrowers with LTVs between 85% and 94%, a range that leaves homeowners more vulnerable to even modest declines in home prices. This growing leverage has also led to a rise in negative equity.
In the third quarter, about 2.2% of mortgaged homes—approximately 1.24 million properties—were underwater, meaning the outstanding loan balance exceeded the home’s value. This marked a 21% increase from a year earlier, with an additional 216,000 homes slipping into negative equity. Compared with the second quarter, the number of underwater properties rose 6.7%, reflecting a typical seasonal slowdown as the fall market replaces the stronger spring selling season.
Looking ahead, Cotality expects negative equity levels to remain relatively stable. Its analysis shows that a 5% increase in home prices would restore positive equity to around 168,000 homes, while a 5% decline would push roughly 319,000 more properties underwater. The firm’s Home Price Index forecasts national home prices to rise slightly more than 4% by October 2026, a pace unlikely to significantly reverse recent leverage trends.
The performance of highly leveraged loans will depend heavily on broader economic conditions, particularly labor market strength, Hepp noted. While modest price growth is still expected, she cautioned that these loans warrant close monitoring.
Equity trends are also diverging sharply by region. Homeowners in the Northeast continued to post annual equity gains, with Connecticut leading at about $31,500, followed by New Jersey and Rhode Island. In contrast, 32 states recorded year-over-year losses, led by Florida, the District of Columbia, and California.
Overall, the data suggest the U.S. housing market is settling into a more fragile balance, where elevated total equity masks growing vulnerability among recent buyers and highly leveraged households.
