The Real Picture of Home Equity Loss
You’ve likely seen headlines about falling home values, but what does that mean for home equity, the portion of your home’s value that you actually own?
Decoding Equity Loss: What the Data Says
While a significant share of U.S. homes—over half—may have experienced a decline in market value from their peak, it’s crucial to understand that actual equity loss is still rare for the vast majority of long-term homeowners.
- The Big Number: Roughly 53% of U.S. homes have seen their estimated value decrease over the past year. This is the highest share of value declines since 2012.
- The Critical Context: Despite the market shifts, only about 4% of homes are currently valued below their last sale price. This means that over 95% of homeowners who’ve owned their property for a few years or more still have positive equity.
- The Average Decline: For those with a mortgage, the average homeowner may have seen a modest decrease in equity, estimated at around $9,200 year-over-year.
- The Silver Lining: The average mortgaged homeowner is still sitting on a substantial amount of wealth, estimated to be around $307,000 in accumulated home equity—a testament to the massive gains seen in recent years.
The most significant impact has been seen in markets that experienced the most rapid, pandemic-era price surges, such as parts of the West and Southwest.
Why Equity is Still a Veteran’s Greatest Asset
For Veterans, accumulated home equity can be a powerful financial tool. Even with recent moderating prices, the equity you have built allows for opportunities like:
- VA Cash-Out Refinancing: Using a VA Cash-Out Refinance to access cash for home improvements, debt consolidation, or other needs.
- Downsizing: Selling your home and using your equity for a substantial down payment on a smaller, more affordable property.
Preparation Strategies for Sellers and Buyers
The current market is moving toward a more balanced, but still challenging, environment. Preparation and a clear strategy are more important than ever for both sides of the closing table.
For Sellers: Mind the New Reality
After years of bidding wars and easy sales, the power dynamic has shifted slightly. Sellers now need to work harder to attract offers.
| Seller Strategy | Actionable Tip |
| Price It Right | Work with your agent to price the home based on recent comparable sales (comps), not peak-of-the-market hopes. An aggressive price in a slowing market guarantees more time on the market and often leads to an eventual price cut. |
| Maximize Curb Appeal & Condition | A cooling market means buyers are less willing to overlook flaws. Invest in high-impact, low-cost repairs and deep cleaning. A well-maintained home is more likely to meet or exceed its appraised value. |
| Be Appraisal-Ready | Prepare a detailed list of all major improvements and upgrades (with dates and costs) for the appraiser. This helps ensure the appraiser has all the data to support a higher valuation. |
| Expect Negotiation | Be mentally prepared to entertain offers for a price reduction or to contribute to the buyer’s closing costs. The goal is a clean, quick closing, not the highest possible list price. |
For Buyers: Patience, Preparation, and VA Power
Today’s market offers a unique blend of challenge and opportunity for Veterans and military families utilizing their VA Loan benefit.
| Buyer Strategy | Actionable Tip |
| Leverage Your VA Benefit | The VA Loan is the most powerful mortgage tool available. Its no-down-payment and flexible credit requirements give you a distinct advantage. Make sure your offer highlights that you are a pre-approved VA buyer. |
| Lock in Your Rate (or Plan to Refinance) | Mortgage rates are elevated but expected to ease slightly. Focus on buying a home you can comfortably afford right now. The strategy of “Buy the House, Date the Rate” may be key: you can always use a VA Interest Rate Reduction Refinance Loan (IRRRL) to get a lower rate later if market conditions improve. |
| Include an Appraisal Contingency | In a moderating market, an appraisal contingency is your best friend. It ensures you have the option to walk away (and get your earnest money back) if the home appraises for less than the purchase price. |
| Get Pre-Qualified NOW | Before you even look at a home, get fully pre-qualified for your VA Loan. This shows sellers you are serious, significantly strengthens your offer, and gives you a clear budget. |
The Low Appraisal Crisis: What to Do
The number one hurdle in a slowing market is the low appraisal, which creates an appraisal gap. This occurs when the home’s appraised value—the lender’s professional assessment of its worth—is lower than the contract purchase price. Since lenders will only finance up to the appraised value, the buyer and seller must bridge this gap to close the deal.
What Happens When the Appraisal Comes in Low?
If the appraised value is lower than the price you agreed to pay, you have a few core options as a VA buyer:
1. Challenge the Appraisal (Reconsideration of Value)
Your first move should be a careful review of the appraisal report with your real estate agent. If you find factual errors (incorrect square footage, missing bathroom count, failure to include relevant comps), your lender and agent can submit a formal Reconsideration of Value (ROV) request to the appraiser with new, strong comparable sales data.
2. Renegotiate the Purchase Price
Ask the seller to reduce the sale price to match the appraised value, or to meet you halfway on the difference. In a balanced market, motivated sellers may agree to this to avoid having the deal fall apart and needing to find a new buyer.
3. Pay the Appraisal Gap in Cash
If the seller refuses to lower the price, the buyer must bring the difference between the appraised value and the purchase price to closing in cash, in addition to their required down payment (if any) and closing costs.
Example: You offered $400,000, and the appraisal is $390,000. The lender will only loan on $390,000. You would need to bring an extra $10,000 to the closing table to make up the difference.
4. Walk Away from the Deal
If you have an appraisal contingency in your purchase agreement and you cannot agree on a resolution with the seller (or you cannot afford to cover the gap), you can walk away from the deal and retain your earnest money deposit. This is why a contingency is so vital!
Financial Freedom Through Smart Refinancing
Even if you’re not looking to move, the shifting housing landscape presents significant opportunities for existing homeowners to secure their financial position.
VA Cash-Out Refinancing: Tapping Your Wealth
If you are one of the vast majority of homeowners with substantial positive equity, a VA Cash-Out Refinance is a powerful way to leverage that wealth. This loan allows you to replace your current mortgage with a new one for a larger amount and take the difference out in cash. You can use it to:
- Consolidate High-Interest Debt: Pay off credit cards, auto loans, or other debt with a lower-interest mortgage payment.
- Fund Home Improvements: Increase your home’s long-term value by paying for necessary renovations and upgrades.
- Eliminate Mortgage Insurance: If you have an FHA loan or a Conventional loan with PMI, a VA Cash-Out Refinance can often allow you to eliminate those monthly insurance payments.
VA Streamline Refinance (IRRRL): Dropping Your Rate
If you secured your current VA Loan when rates were higher, a VA Streamline Refinance (or IRRRL) is the easiest way to potentially lower your interest rate. It’s called “streamline” because it typically requires less paperwork and no new appraisal or credit underwriting, making it a fast and affordable path to lower monthly payments.
Your Next Strategic Step
Whether you are looking to buy a new home, sell your current one, or simply use your hard-earned equity for financial stability, your first step should always be to consult with a lending expert who understands the nuances of the VA Loan and today’s housing market.
Don’t navigate this market alone. The team at VeteransLoans.com specializes in helping Veterans leverage their earned benefits to achieve their homeownership and financial goals.