Equity is the difference between what a property is worth and what is still owed against it, representing the owner's actual stake in the property. Equity grows as the loan balance is paid down and the property's value rises, and it shrinks if the value falls or more debt is added against it, such as a home equity loan.
Why it matters
Your equity, not the price of the house, is what you actually walk away with after paying off what you owe.