What will happen to home equity levels in 2025?
U.S. homeowners are experiencing an economic boost thanks to record-high home equity levels. According to data from CoreLogic, homeowners with a mortgage experienced a collective home equity increase of $425 billion from the third quarter of 2023 to the third quarter of 2024. That's a total increase of 2.5% year over year.
Your home equity is the difference between the market value of your house and what you currently owe on your mortgage. High home equity levels can provide an affordable way to borrow against your home, especially in today's market, so this type of equity can be quite useful for the right homeowners.
Home equity levels have been rising for several years, and one of the biggest drivers is the steep increase in home prices. The median listing price of homes climbed by 37.5% from May 2019 to May 2024. As property values rise, the market value of your home increases as well — but what could happen to home equity levels in 2025? We spoke to three experts who shared their predictions on what could happen with home equity amounts this year.
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What will happen to home equity levels in 2025?
"Home equity levels have skyrocketed due to the huge increase in home prices coupled with the nationwide housing shortage," says Brian Rudderow, a real estate investor at HBR Colorado. "Also, people are holding onto their homes for longer amounts of time, which is boosting the equity they hold even further."
The overall consensus is that home equity levels will continue to rise in 2025 — but at a slower pace comparatively.
"The housing market should return to a more normalized and stable condition, with increased inventory giving buyers more choices and possibly lessening the rapid appreciation experienced in recent years," says Alexei Morgado, CEO and founder of Lexawise.
Rudderow agrees.
"This is mainly due to the market shifting into more of a buyer's market with some minor price corrections. However, I do still think that home equity levels will continue to increase slightly throughout the year going into 2026," Rudderow says.
One reason home prices may not go up as much in 2025 is due to rising inventory levels. The number of unsold homes available on the market is currently 27% higher than it was a year ago. This could reduce significant equity gains, experts say, but could help with home affordability for new buyers.
Steven Parangi, a mortgage broker and owner of Alpine Mortgage, says home equity would likely see modest gains overall but with regional variations.
"Some areas, like Boston or Miami, will see continued equity growth while others will stagnate or even decline," he says. "For example, Northern California and parts of Florida have already seen home price declines due to affordability and climate risks."
Economic factors like inflation, employment levels and whether the Federal Reserve continues to cut interest rates will also play an important role.
"If mortgage rates stabilize or decline slightly from their current levels, it could support modest price appreciation and equity growth," Parangi says.
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Should you tap into your home equity now?
If you're sitting on a lot of home equity, you may be wondering if you should access it now or wait for home equity levels to increase further. That largely depends on your financial situation, but there are benefits to using it now instead of waiting.
There may be tax benefits if you use your home equity to make strategic improvements to your property, for example. Plus, a home equity loan or home equity line of credit (HELOC) generally comes with much lower rates than credit cards or personal loans, especially in today's rate environment.
If you decide to access your home equity now, Parangi recommends doing so strategically.
"Make sure to check the current rates and use funds for productive purposes, like debt consolidation or investments," Parangi says.
However, he adds that it's important to plan for long-term home ownership.
"In a market with slower price appreciation, building equity through regular mortgage payments becomes more important. Homeowners should focus on maintaining their property and avoiding unnecessary debt against their homes," Parangi says.
The bottom line
The outlook for home equity in 2025 appears cautiously optimistic, with experts predicting continued but modest gains. But while there's a chance that the rapid home equity appreciation seen in recent years may slow due to increasing inventory and regional market variations, homeowners can still benefit from today's historically high equity levels. When deciding whether to tap into your home equity, though, it's important to carefully consider your financial goals and market conditions beforehand. That way, you can ensure that you're making the smartest decision possible for your finances.
