US Homeowner Equity Hits Four-Year Low as Underwater Mortgages Rise

Higher mortgage rates and cooling property values have triggered the first significant decline in American home equity in years. According to a new report, the share of "equity-rich" homes—those where the owner owes 50% or less of the property's value—slipped to 43.3% in the first quarter of 2024. This marks the lowest level seen in four years, signaling a shift in a housing market that had previously seen values skyrocket.

While the majority of homeowners still hold significant wealth in their properties, the number of "underwater" mortgages is beginning to climb. These are homes where the debt exceeds the property’s current market value. Though the current percentage of distressed homes remains low by historical standards, the trend suggests that the era of rapid, effortless equity gains may be coming to a close as the market stabilizes.

Financial analysts are closely watching whether this trend will impact consumer spending, as many homeowners use home equity lines of credit to fund renovations or major purchases. If property values continue to stagnate while interest rates remain elevated, the cushion that protected many households from market volatility could continue to thin. Experts will be looking at upcoming summer sales data to see if a seasonal boost can reverse the slide.

This report and its accompanying data were originally provided by realtor.com.