July 25, 2019

Equity and The Power of Appreciation

As a homeowner, you have the opportunity to create financial stability by building up equity over the years – a critical part of homeownership. You'll do this by paying down your mortgage (through your monthly mortgage payment) and your home's appreciation over time.

Paying down your mortgage through the stability offered by a fixed-rate mortgage is relatively easy to forecast and calculate. It's the more predictable of the two ways to build equity . By contrast, your home's appreciation over the years is far less predictable and it's important to know it can go up or down. Yet – if the market is in your favor – rising home values can be a significant driver in building wealth.

According to a recent report by CoreLogic, home prices have risen 50% over the last 10 years – a significant contribution to equity growth across the nation. In fact, the average equity per borrower grew from about $75,000 to $171,000 between the first quarters of 2010 and 2019, giving homeowners a tremendous financial boost.  

Today's total U.S. home equity is nearly $16 trillion, almost triple its value of 2009.

Many of the homeowners who reaped significant equity over these years plan to use it for a larger down payment on their next home. For those not ready or wanting to sell, they have a nice nest egg or safety net in the event of home price declines.

While this 10-year lookback on appreciation is unusually strong, it illustrates the power to build equity through appreciation. It's important to note there are no guarantees with home price gains and it's very possible for home values to depreciate. In fact, in the first quarter of 2010, 25% of all mortgaged homes in the country had negative equity.

Learn more about buying, owning and renting a home at My Home by Freddie Mac®.