Cotality Expects Modest Housing Recovery Beginning in 2026
Min 1: One-Third of Largest 100 Metros Posted Price Declines
Share of metros experiencing year-over-year price declines surged to one-third of largest 100 metros by October according to Cotality data. At start of year, only six metros posted year-over-year drops but by October that number surged to 32, spreading beyond Florida into Texas, California, and Mountain West. Within span of three years, housing market changed markedly compared with robust gains of 2022 when some metros saw over 30% appreciation. Slowing in price growth had ripple effects throughout market. As housing wealth hit record $48.6 trillion in second quarter, homeowners began tapping into accumulated equity. Home equity lending rose to highest level since 2008 with lenders originating more than 557,000 new loans totaling about $31.6 billion during first three quarters of 2025. Number of home equity loans and amounts increased 3% and 10% respectively year-over-year. Share of seriously delinquent mortgages slightly increased to 0.94% in September from same time last year, particularly for FHA loans.
Min 2: Investors Spent $483 Billion Through October
Investors maintained strong market presence in 2025 spending $483 billion on just under one-third of all single-family home purchases through October according to Cotality. Investor activity on track to surpass 2024 totals of $475 billion spent on 1.05 million homes. Still investor activity remained robust representing substantial segment of market this year. Rental market softened nationally with single-family rent growth slowing to 15-year low by October. Metros with year-over-year declines in Single-Family Rent Index grew from eight of largest 50 metros in January to 18 in October. However those decreases haven't erased gains from 2021 and 2022—despite recording largest drops in October rent prices, Cape Coral, Florida and North Port, Florida still up 27% and 32% respectively over past five years. Typical age for first-time homebuyers remains close to 32 years old with median age up in expensive regions like California but dropped in less costly Midwestern and Southern cities.
Min 3: Washington DC Saw Record 60% Inventory Increase
While national for-sale inventory increased in single digits in November 2025, greater Washington DC region saw record-breaking 60% year-over-year increase in inventory according to market data. Number of homes on market up at least 40% in all five metropolitan divisions. Sharpest rise seen in Frederick-Gaithersburg-Bethesda, Maryland metro division on northern edge of metro area where number of unsold homes up 68% since November 2024. There have been sharp regional variations in market this year with federal sector layoffs and government shutdown leading to inventory spike. Jump led to home listings lingering around longer with 36% rise in median time on market. Housing wealth peaked in 2025 with total value of residential housing stock hitting record $48.6 trillion in second quarter before pulling back slightly to $48.4 trillion. Since start of decade, market created $18 trillion in residential housing wealth—$6 trillion more than added during entire 2010s.
Min 4: Escrow Shock Could Trigger Localized Delinquency Spikes
Rising non-mortgage costs pose significant risk to 2026 recovery according to Cotality forecast. Insurance and property taxes increasing faster than wages could cause escrow shock particularly for recent buyers with low down payments. Home insurance premiums now 52% higher than 2020 levels with average homeowner putting about one-third of monthly payment toward taxes and insurance. Property taxes climbed about $700 annually since 2020 while insurance adds roughly $1,000 per year in several high-risk states. Growing number of homeowners put upwards of 50% of monthly payment toward taxes and insurance in some markets fundamentally changing affordability calculations. FHA serious delinquency rates hit 4.12% up 58 basis points year-over-year while conventional loans stayed near historic lows at 0.63%. Economic headwinds including softer labor market, personal debt obligations, and rising escrow costs exacerbate already stretched affordability for low-down-payment borrowers.
Min 5: Buy Northeast and Midwest Markets for 3% Gains
The geographic divergence between declining coastal markets and stable Midwest creates targeted investment opportunity. An investor who deploys $2 million into 10 properties across Indianapolis, Grand Rapids, Milwaukee, and Minneapolis at $200,000 average basis captures forecasted 3% appreciation generating $60,000 value increase in 2026. These markets also deliver superior cash flows with lower property taxes and insurance costs compared to Florida and Texas. A $200,000 Indianapolis rental generating $1,650 monthly rent carries $150 monthly insurance and $200 monthly taxes versus $350 insurance and $300 taxes on comparable Florida property—$300 monthly expense advantage translates to $3,600 annually per property or $36,000 across 10-unit portfolio. Combined with 3% appreciation, investor captures $96,000 total returns on $2 million deployed representing 4.8% annual returns before financing leverage. Using 75% LTV financing at 7%, investor deploys just $500,000 equity and captures $96,000 returns representing 19.2% levered cash-on-cash returns.
The Takeaway
Cotality expects modest housing recovery beginning 2026 with national home prices rising 3% centering on Northeast and Midwest markets as labor stability and gradual rate easing above 6% support growth, though escrow shock from rising insurance and taxes poses risk causing localized delinquency spikes for low-down-payment borrowers. One-third of largest 100 metros posted price declines by October expanding from just six at year start as price growth slowed from 3.4% in January to 1.1%—lowest since 2012—while housing wealth hit record $48.6 trillion driving home equity lending to highest level since 2008 with 557,000 new loans totaling $31.6 billion. Investors spent $483 billion through October on nearly one-third of single-family purchases on track surpassing 2024's $475 billion as rental market softened with single-family rent growth hitting 15-year low, metros posting year-over-year declines doubling from 8 to 18 of largest 50. Washington DC saw record 60% inventory increase year-over-year versus single-digit national gains with Frederick-Gaithersburg-Bethesda up 68% as federal layoffs and government shutdown caused regional divergence while median time on market rose 36%. Investors deploying $2 million into 10 properties across Indianapolis, Grand Rapids, Milwaukee, and Minneapolis at $200,000 average capture 3% appreciation generating $60,000 plus $300 monthly expense advantage over Florida delivering $36,000 savings—combined $96,000 returns on $500,000 equity using 75% LTV represents 19.2% levered cash-on-cash returns targeting stable Midwest over declining coastal markets.
