If you’ve noticed headlines saying home prices are dropping, you might be wondering how that affects your own home's value. Here’s the important information you should know.

Even if prices have dipped a bit in some areas, the data shows you’re probably still in a strong position. That’s because your home equity has been building up.

The Relationship Between Home Prices and Equity

Home equity tends to follow the same pattern as home prices. When prices go up, your equity grows. When prices slow down or dip a bit, equity growth slows down too. Here's a look at how that’s been happening recently.

After the record-breaking home price increases in 2020 and 2021, a bit of a slowdown was bound to happen. Inventory dropped to all-time lows, leading to intense competition among buyers. With so few homes available, prices naturally kept climbing.

At that time, there were very few homes available for sale, which made home values—and your equity—rise sharply as buyers competed for the limited options.

Home prices couldn’t keep climbing that quickly forever. Sooner or later, the market needed to slow down, and that’s exactly what we’re noticing right now.

With more homes hitting the market this year, price growth has slowed down, which means equity gains have tapered off as well. But that doesn’t mean you’ve lost any ground.

 Putting it into Perspective

Chances are, you have a lot more equity in your home now than you did a few years ago. That gives you a great advantage if you’re thinking about selling. Here’s the data to back it up.

Research from Zillow shows that home prices across the country have gone up by an impressive 45% since March 2020. That’s a significant increase.

In most areas, home prices are still climbing, but at a slower rate. Even in the cities where prices are dropping the most—the ones in the headlines—the average decline is just about 4%.

Here’s the deal: in most areas, home prices are going up, so there’s not much to worry about. Even in the few cities where prices are slowing down a bit, the gains over the past five years still outweigh those minor drops.

Basically, these small drops don’t undo years of appreciation. Homeowners who’ve lived in their homes for a while are still doing very well. This holds true in pretty much every area.

Data from the Federal Housing Finance Agency (FHFA) gives us a clear picture. If we zoom out and check prices state by state, we see that every state has experienced price increases over the past five years. That means homeowners everywhere have built up a lot more equity compared to five years ago (see graph below).

If you've owned your home for a few years, chances are you've built up equity that many only wished for before the pandemic. When you sell, that equity can give you a great boost—whether you're looking to downsize or move up.

If you’re concerned that home prices might drop and impact your equity more significantly soon, Jake Krimmel, Senior Economist at Realtor.com, offers some insight on this.

““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 . . .”
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— Jake Krimmel, Senior Economist at Realtor.com

The recent slowdown in price increases isn’t something to worry about. It actually shows the market is leveling out after years of prices rising too quickly. Even with these changes, most homeowners remain in a really strong position thanks to the significant gains they’ve seen over the past few years.

 Bottom Line

Even though prices are dropping in some areas, homeowners today still have almost record-high equity in their homes.

Curious about how much equity you’ve built up or just want to know where you stand? Let’s get in touch. You might be surprised at your home’s current value.