It's the biggest investment most of us ever make.

But many homeowners are seeing the American Dream erode as falling home prices continue to eat away at their home equity.

Figures released Thursday by the Federal Reserve reveal that the average homeowner now has 38 percent equity, down from 61 percent a decade ago.

Home equity is the difference between a home's fair market value and the outstanding balance of all liens on the property.

Equity increases as the homeowner makes payments against the mortgage balance and/or as the property value appreciates.

Paul Addondante, a professor of finance at the University of La Verne, says the loss of home equity will have a ripple effect.

"People are less wealthy and they feel less wealthy," he said. "It very well could affect their buying patterns. They will be less willing to make big purchases, such another car, a home remodeling - anything that requires a large amount of money."

Homeowners, particularly those in their 50s and 60s, are also looking ahead and questioning whether they'll have enough money for retirement, Abbondante said.

"Older homeowners who had the most equity have lost the most," he said. "It's going to take quite some time for the housing market to come back. The credit standards for buying homes have increased, so the idea of buying with no money down will not work these days."

Marty Rodriguez, owner of Century 21 Marty Rodriguez in Glendora, acknowledged that the decline in home equity has been dramatic. But she put the numbers in perspective.

"This was all driven by the subprime market," she said. "Ten years ago they were giving money away and your home equity was much higher because of a false market. We have now adjusted to where the market is supposed to be ... where buyers actually have to qualify for a home. This is an adjustment back to reality."

And a painful adjustment at that.

Figures from the California Association of Realtors show just how far Southland home prices have fallen in recent years.

Los Angeles County's median price for an existing, single-family home topped out at $625,812 in September 2007. A year later the median price had dropped to $385,269, and in April of 2011 it landed at $290,120.

"I see the housing market growing in fits and starts the same way the Dow Jones and Nasdaq have," Addondante said. "We're in a stage of recovery that isn't a recession, but it doesn't feel like a good economy either."

Many homeowners are lamenting the decline of their home equity, but John Bruno in Monrovia isn't one of them. Bruno, 75, said he purchased his house 23 years and doesn't plan to move anytime soon.

"I don't think about selling or anything, so declining home equity really doesn't concern me," he said.

Marie Johnson, who bought her Whittier home 11 years ago, isn't fretting about the housing downturn, either.

"No, I have the equity - and it's solid," she said. "And besides, it's the economy ... so what are you going to do?"

Rodriguez said scores of homeowners took advantage of the inflated prices of their homes at the peak of the housing market by siphoning off cash via home equity lines of credit.

"When the market started to climb many people were pulling cash out of their homes like it was an ATM," she said. "But you don't use that equity to buy a boat or toys. That is your safe haven ... your security."