Falling house prices could be squeezing your home equity

How falling house prices affect your home equity

When house prices fall, the market value of your property declines. This directly reduces the equity you hold in your home, because equity is the difference between what your property is worth and what you still owe on your mortgage.

For example, if your home is worth $800,000 and you owe $500,000, your equity is $300,000. If the house price falls by 10% to $720,000, your equity drops to $220,000, all else being equal.

Why it matters

Your home equity is more than a number. Lower equity can affect your financial flexibility, such as your ability to refinance, access a home equity loan, or sell your property and still have enough to pay off your mortgage.

If prices fall enough that your loan exceeds your property’s value, you could find yourself in negative equity. This is a serious situation, as selling your home might not cover the debt.

What can you do?

Keep track of your local housing market and your property’s estimated value. Consider how much you owe and how much you might need to pay off if you were to sell. Regularly reviewing your finances can help you prepare for changing market conditions.

Talk to a financial advisor or mortgage broker to understand your options and plan for any potential impacts on your home equity.