Why Your Home Equity Still Puts You Way Ahead

If you’ve seen headlines about home prices dropping, it’s easy to wonder what that means for the value of your home too. Here’s what you really need to know.

Even with small price declines in some markets, recent data suggest many homeowners may still have a solid amount of equity-though everyone's situation is a little different.

The Relationship Between Home Prices and Equity

Home equity moves in sync with home prices. When prices rise, equity builds. When prices cool (even just slightly), equity growth does too. Here's how that’s played out lately.

After the record-setting home price surge of 2020 and 2021, a little cooling was inevitable.

Back then, the number of homes for sale hit a record low. That caused home values (and your equity) to shoot up significantly as buyers fought over limited inventory.

But prices couldn't continue to rise at that intense pace forever. The market has shown signs of moderation in recent data, although conditions vary by region.

As more homes have come on the market this year, price growth slowed – so, equity gains did too. And that doesn’t mean you’ve lost ground.

Putting it into Perspective

Many homeowners who purchased their homes several years ago may have gained equity, depending on local market trends. And that puts you in a strong position if you want to sell. Here’s the data to prove it.

According to research from Zillow, home prices have risen a staggering 45% nationwide since March of 2020. That’s a big jump.

And in the majority of markets, prices are still rising, just at a much slower pace. But even in the metros where prices are experiencing the biggest declines (the ones making the headlines), the average drop is only about -4%.

So, what’s that really mean? In most places, prices are on the rise, so this isn’t even a concern. But in the few metros where prices are cooling off a bit, the 5-year gains more than offset those small dips.

Source: ResiClub, These 80 housing markets are seeing falling home prices, November 2025

In other words, these modest declines can’t erase years of growth. Homeowners who’ve been in their houses for several years are still way ahead. Big time. And that’s true pretty much everywhere.

Data from the Federal Housing Finance Agency (FHFA) helps paint this picture. Let’s cast a slightly wider net and look at a state-by-state level this time. Every single state has seen prices go up over the last 5 years. And that means homeowners in each state have much more equity than they did just 5 years ago (see graph below):

Source: FHFA ,FHFA House Price Index Datasets, November 2025

In many areas, homeowners who purchased several years ago have seen equity growth, according to recent market data, though this varies significantly by location and property. And if you sell, you can use it to help you downsize, or move up.

And just in case you’re worried prices will crash and your equity will take a bigger hit in the near future, here’s what Jake Krimmel, Senior Economist at Realtor.com, has to say:

“The slight recent declines in aggregate value and total home equity are not cause for concern . . . Although the market is coming into better balance, large price declines nationally are extremely unlikely in the near term . . .”

The price moderation we’ve seen lately isn’t a cause for concern. It’s a signal of a market that may be finding its balance again after several years of unsustainable price growth. And after several years of major price appreciation, most homeowners are possibly still in an incredibly strong position.

Bottom Line

Even with prices softening in some markets, many homeowners may still hold substantial equity, based on current market trends.

If you'd like to better understand your home equity, connect with a First Federal Bank Loan Officer today.