12 States Where Home Prices are Falling

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The housing market appears to have more twists and turns than a Harlan Coben novel. After the frothy, frenzied post-pandemic year that saw bidding wars and skyrocketing rents, we now appear to be in a seller’s market in many states, with investors having the rare opportunity to negotiate price, terms, and repairs. 

The only question remaining for those looking to add to their portfolios is whether to jump in now or hold off in the hope of an even greater correction down the line, given the geopolitical climate.

Job Losses, Insurance Increases, and New Inventory: Why Prices Are Falling

At the top of the list of plummeting cities is Washington, D.C., which is down just over 3% year over year, according to the Home Price Index released by Cotality.

“That market continues to experience job uncertainty due to heightened austerity and a review of position needs within the federal sector, which has historically fueled many local incomes,” real estate agent Jules Garcia at Coldwell Banker Warburg told MarketWatch. “Additionally, D.C. and Virginia are no longer seen as the East Coast’s Silicon Valley, a title the area held for about 20 years.”

In Florida, the 2.3% drop in house prices has happened for different reasons: “Certain Florida cities such as Ocala, Naples, Punta Gorda, and Cape Coral will likely experience a sustained decline rather than a spike,” added Garcia. “For those cities, it’s really rising insurance costs that are impacting overall affordability, even with Florida’s no state income tax attractiveness.” 

By and large, the Sunbelt, California, and Texas are witnessing price drops, while the Midwest and Rust Belt are seeing modest gains. Investors who are not geographically bound have a rare choice: buy where prices are falling, and look to cash in and/or refinance when prices go up, and rates fall.

The alternative is to invest in a moderately growing heartland market where prices and potential equity gains are lower, but so is the risk, while cash flow might even tip into the positive side of the ledger, even with current rates.

Before going any further, let’s take a look at the 12 markets where data and analytics company Cotality sees home prices on their way down.

12 States Where Home Prices Are Falling

Widening the Lens: How Long Will We Be in a Soft Housing Market?

Before deciding to buy, it’s a good idea to know when you are likely to see some ROI on your investment in terms of equity. According to a recent analysis from the American Enterprise Institute Housing Center (AEI), reported by Fortune, single-family home prices grew just 1.1% over the last 12 months through February 2026, the slowest appreciation since AEI began collecting data in 2012.

Alarmingly, AEI projects that average prices for single-family homes will slip by about 1% by the end of 2026 and another 2% in both 2027 and 2028. At the metro level, Fortune reported that 28 of the largest U.S. markets saw price declines through February, including every major metro in Florida, California, and Texas.

Cape Coral, Florida, has seen a 9.6% decline over the last year, while North Port, Florida, Memphis, Tennessee, Tucson, Arizona, and Palm Bay, Florida, have all reported between 3.8% and 6.1% drops. Conversely, Kansas City, Pittsburgh, and Cleveland are showing gains of 5.8% to 8.6%.

“We’ll see more of the same,” AEI co-director Ed Pinto told Fortune, adding that the boom and bust markets, where prices soared and consequently posted the large declines, will need to fall further to restore affordability. “Eventually, once the hot spots are back to more normal levels, they’ll come to the fore again because people want to move there. The Sunbelt is always going to be the Sunbelt.”

Buy Now or Wait Out the Market?

Investors will need to make a shrewd calculation. Buying in an overheated, declining market that is expected to rebound is a matter of timing, largely based on affordability. A U.S. housing market is generally deemed affordable when the median mortgage payment consumes 21% or less of the median household income (in the current market, that threshold can rise to 30%).

Scrupulous negotiating will help you get there, even if you aren’t there yet. Of course, a drop in mortgage rates will also help. Many sellers want to end the pain of holding on to a property they either can’t afford or need to move away from, and might be willing to strike a deal by holding the note, waiving contingencies, paying closing costs, or agreeing to a reduced sales price.

“A savvy buyer will… pair a realistic offer with requests for closing-cost credits, a rate buydown, or targeted repairs that lower their monthly payment and out-of-pocket costs, while still giving the seller a headline price they can live with,” Zillow home trends expert Amanda Pendleton told MarketWatch when commenting on data that showed 67% of sellers reported paying some if not all of the buyers’ closing costs in 2025, a percentage higher than the previous year.

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If an investor wishes to buy in an appreciating market with tight competition, they might be the ones who have to modify their expectations. One way to make this investment palatable in the short term is to increase cash flow. The easiest way to do that is by creating revenue where there was none—by converting basements or attics or by adding ADUs. Laundry facilities, air conditioning, storage, and even parking facilities are other ways to increase cash flow.

Final Thoughts

“Waiting out the market” is never really a cogent plan, especially in these uncertain times. That really means waiting for interest rates to fall. If that were your strategy, you would have probably been waiting for five years by now. And just when rates did start to fall last month, the war with Iran sent them back up again.

A better strategy is to pick a market and try to make it work. Where prices are declining, sellers might be willing to strike a deal; where they are increasing, it means a lot more work in finding property, structuring financing that works for the short term, and ruthlessly looking for ways to increase revenue and decrease expenses.

In some cases, that might mean contesting taxes, finding cheaper insurance, or, if your property is in a college or vacation town popular with short-term rentals, teaming up with a successful operator and working out a revenue split or management/lease agreement. 

Keep working the angles. People always need a decent place to stay, and home prices are the great equalizer. Ultimately, they always go up.