Homeowners Enjoy Substantial Financial Boost as Equity Soars by $3 Trillion in a Year—Despite Growing Mortgage Debt

The housing market, with its stubbornly high mortgage rates and home prices, has been an unfriendly place for buyers lately.

Homeowners, however, are holding the winning hand—and their home equity remains the ace up their sleeves.

The Federal Reserve’s Flow of Funds data for the third quarter of 2024 reveals that the total value of owner-occupied real estate registered at an eye-popping $48.2 trillion.

These near-record high home values give homeowners near-unprecedented levels of equity, providing a runway for financial stability.

“Homeowners can utilize their substantial equity to secure low-cost credit during economic downturns, offering financial flexibility for emergencies, investments, or consolidating debt,” says Realtor.com®  economist Jiayi Xu in her recent analysis.

Home values near record highs

While the total value of owner-occupied real estate number dipped slightly from its all-time high, it still “marks the second-highest total home values on record,” says Xu.

Plus, at $48.2 trillion, this number reflects an impressive $3 trillion gain over the past year, showing just how far the real estate market has come over the past decade.

For context: 10 years ago, this figure was nearly half what it is today and hovered between $20 and $22 trillion.

The latest report marks a growth of more than 100%, far outstripping the increase in the overall price level, as measured by the Consumer Price Index.

Inflation rose by 33% over the same 10 years, but aggregate home values more than doubled, reflecting the increase in home prices as well as expansion of housing stock.

Mortgage debt continues to grow

Despite the boom in home values, the Fed’s report reveals a mixed picture when it comes to the housing market.

While rising home values bolster homeowner equity, mortgage debt is also climbing. It reached a total of $13.3 trillion—an increase of $104.9 billion from the previous quarter and $334.6 billion from the same period a year prior.

“High mortgage debt can sometimes raise concerns about financial risk,” says Xu.

However, she is quick to point out that while mortgage debt has continued to grow year over year, the pace of growth has slowed to 2.6% year over year.

“Even though total debt has hit historic highs, the debt-to-equity ratio—a key measure of financial health—was 0.38 in Q3 2024,” says Xu. “This is much lower than the average of 1.04 seen during the 2008–2009 financial crisis.”

In simpler terms, the strong real estate values in 2024 have helped ease worries about financial risk from the sky-high debt.

Homeowners’ equity stays near historic highs

Despite rising mortgage debt, homeowners’ equity remains remarkably strong.

“Homeowners’ equity in real estate amounted to $35.0 trillion, marking a drop of $0.3 trillion from last quarter but a $2.6 trillion increase from the previous year,” according to Xu.

Equity—as a proportion of real estate values—stood at 72.5%, the second-highest level since 1960. This stark improvement contrasts with the lows seen during the housing crash.

“It’s well above the lows seen in 2012 (45.8%) and also above the 60-65% share it saw through much of the late 1990s and early 2000s,” says Xu.

How much home equity owners have

The substantial equity cushion enjoyed by today’s homeowners provides a critical financial buffer against financial uncertainty.

According to the Fed’s data, the average homeowner holds about $266,000 in equity.

“Even if the value of homes were to universally decline by 10% overnight from their level at the end of the third quarter, homeowner equity would still be at 69.5%, on par with the second half of 2021,” says Xu.

A more severe 20% price drop would reduce equity to 65.6%, a figure last seen in 2019.

“High equity could also act as a safety cushion, providing stability of mind in uncertain times,” says Xu.

What happens if home prices head south?

Owners may be tempted to cash out of their homes now to take advantage of their near-record home equity, yet those who wait will still reap the benefits—even if prices were to decline slowly over the next two years and mortgage debt continued to rise.

“Even under these conditions, homeowners would still have 62.0% equity in their real estate by the end of that period,” explains Xu.

And while slower price declines could chip away at equity, a dramatic shift is unlikely. Falling prices typically put the brakes on mortgage lending, keeping debt growth in check and equity largely intact.

This is “a reminder of the important role that home lending plays in household equity in real estate, right alongside home prices,” says Xu.