American homeowners are sitting on $36 trillion in home equity. This pool of wealth represents more than half (54%) of the U.S. stock market’s $66 trillion value. It’s an extraordinary concentration of household wealth, accumulated through decades of rising home prices and mortgage paydowns.
But here’s the uncomfortable truth: The conditions that created this windfall may not repeat.
The recent increase in home prices was a perfect storm of record-low mortgage rates, remote work opportunities and manufacturing reinvestment pouring capital into overlooked regions. Federal policy sparked semiconductor fabrication in Phoenix and Austin, Texas, battery plants throughout the Sun Belt and renewed investment across the Rust Belt and Southeast. These once-in-a-generation shocks turbocharged equity growth by 33%, adding $12 trillion in just two years (2020 to 2022).
Now tailwinds have reversed. National home equity still ebbs and flows (mostly with refinance opportunities) but has delivered more modest gains since 2022, averaging $1.6 trillion a year. The Federal Reserve faces an impossible balancing act as higher inflation and higher unemployment loom, constraining rate cuts. Tariffs are tightening construction output by nearly 4% and squeezing agriculture while raising costs across industries. Artificial intelligence automation threatens employment well beyond manufacturing — sales and customer support, content creation and knowledge work face disruption. Home values in some areas are experiencing “clapback” — a correction from pandemic volatility and overshooting.
For real estate investment, these shifts are crucial. Product-market fit between financial innovations in housing and actual market conditions isn’t fixed. It evolves as interconnected markets respond to economic shocks and policy changes. Strategies that benefit investors and homeowners depend entirely on their exposure to the economic cycle. What works when equity rapidly appreciates doesn’t work when home prices stagnate or fall, as we’ve seen in Florida (home values are down 5% or $20,400 on the typical home) and Arizona (down 3% or $13,600).
This reshapes when and how to profitably invest in real estate: at pre-development, at home purchase or post-purchase when owners need liquidity.
Unlocking trapped equity
Today’s most immediate opportunity lies in a mismatch between homeowner needs and market realities. Millions of Americans refinanced into sub-3% mortgages during the pandemic. With rates above 6%, they’re effectively trapped — unable to sell without sacrificing advantageous financing, yet unable to refinance without dramatically increasing monthly payments.
Home equity co-investment (via home equity agreements) addresses this precisely. Unlike traditional debt, these arrangements provide homeowners with a lump sum in exchange for a share of future appreciation, plus a maintenance fee. That fee is essentially an option payment — homeowners pay to maintain the ability to tap more equity later, moving home equity from a locked vault into a flexible wallet.
The model aligns with current conditions. Homeowners maintain a financial stake in their properties (typically lower than 80% loan-to-value ratio), avoid new debt and can access liquidity within days. For investors, the appeal is nuanced. While long-term home price growth remains likely, near-term forecasts show 1% appreciation for 2025. Some markets face negative projections, particularly job and vacation hot spots that overheated during the pandemic.
Geographic diversification becomes critical to this strategy. When 25 states posted equity losses in the most recent quarter, pooling homes across regions in a co-investment fund mitigates volatility. Regional winners (including New York, New Jersey and Connecticut as well as Kentucky, Illinois and Wisconsin) offset losses in markets still correcting from pandemic excesses.
But this strategy addresses only existing housing stock. The bigger opportunity lies elsewhere.
Following the money
Investment is about following emerging opportunities, not yesterday’s winners. Today’s transformative opportunities aren’t in trading existing homes — they’re in real estate’s changing face.
Industry geography is being rewritten. As AI automation and tariff exposure reshape employment, investors must identify which industries and locations remain insulated. Health care, education and skilled trades show resilience. Regions with diversified economic bases offer stability. These are often more metropolitan (and more expensive) markets, rather than single- industry dependent. This isn’t about chasing the last boom, but anticipating where stable employment will anchor real estate demand for the next decade and leveraging investment opportunities like Opportunity Zones.
Up until now, most options for co-investment at the stage of real estate development have provided pathways for capital to flow into multifamily or other commercial real estate projects. But that too is in flux.
Regulatory change is unlocking billions of dollars in latent residential land value. Upzoning has legalized middle housing (duplexes, triplexes, accessory dwelling units) in the expensive Western states of California, Oregon and Washington on land previously restricted to single-family homes. And it’s not just the West. The 2025 legislative session saw 104 housing bills pass at the state level (up from 30 in 2023), with significant new activity in Midwestern and Southern states that are still relatively affordable but want to get ahead of housing cost crunches.
Up-zoning is spread across the country, from Montana’s “Miracle” legislation and Arizona’s missing middle requirements to Vermont’s fourplex legalization and Texas’s new starter home laws. These regulatory changes promise newly legal development in our most land-constrained, high-demand communities. The housing abundance movement achieved what markets alone couldn’t: the legal right to build density where people want to live.
This creates opportunity at the predevelopment stage for homeowners and co-investors. Converting underutilized single-family lots into middle housing simultaneously addresses affordability and generates returns. In markets where land is scarce and expensive, building three or four units where only one was previously allowed fundamentally changes the investment equation.
The $36 trillion in home equity U.S. homeowners have accumulated represents an achievement and a challenge. For homeowners, it’s wealth that feels simultaneously substantial and inaccessible. For investors, it signifies a market in transition as yesterday’s strategies yield to nuanced shifts that account for regional variation, regulatory change and macroeconomic constraints.
The most sophisticated real estate investors recognize that product- market fit is dynamic. Home equity co-investment serves both parties when mortgage rates trap equity and appreciation is modest. Predevelopment investment in newly upzoned areas capitalizes on regulatory unlocking of value. Geographic diversification hedges against regional volatility.
The pandemic-era tailwinds of free money, location flexibility and concentrated industrial reinvestment are behind us. Success requires matching the right strategy to the right market moment. The pathways into real estate investment are multiplying, but only for those who understand where value will be created next, not just where it was created in the past.
