Fortius Field Notes
The Annual Letter
The Long Grind: Housing’s Multi-Year Balance
As we step into 2026, I want to share my perspective on the housing market and what it means for our investment strategy in the year ahead. The punchline is I don’t anticipate any dramatic moves up or down. Instead, this is about understanding that we’re in for a multi-year grind, how that will slowly restore affordability, and the opportunities it might create.
The Frozen Market Begins to Thaw
The housing market has been effectively frozen for the past two years. Transaction volume tells the story better than anything else. In 2024, existing home sales totaled just 4.06 million, the lowest level since1995. To put that in perspective, we’re talking about nearly 30 years of population growth and household formation, yet we’re transacting fewer homes than we did three decades ago.
But here’s what the casual observer might miss: the market appears to have bottomed in Q3 2025, in respect to transaction volume. I’m not calling for a dramatic recovery and existing home sales will remain subdued for the foreseeable future. Not too many folks are likely to walk away from their 3% or 4% 30-year mortgage, even if they would like to buy something bigger or relocate. Plenty of people seem to be trapped, but with ample equity. From my view volume will continue to increase, slowly.
The Affordability Story No One’s Telling
While housing remains expensive by historical standards, affordability has improved more than most people realize. Wages continue to increase, employment has been resilient, and in many markets, prices have been flat or decreased significantly.
The national median home price-to-income ratio peaked at 5.6x in 2022. Today, it’s around 5.0x. That’s still well above the historical norm of 3.5x, but the trajectory matters. As wages continue to grow and prices remain range-bound, this ratio will continue to compress slowly.
This isn’t a quick fix, but markets tend to revert to the mean one way or another. This is a multi-year grind where wage growth catches up to housing costs through a combination of modest wage increases and flat-to-slightly-declining home prices. I think this balance could persist for several years.
The Great Attrition in Real Estate Investment
While we’re on the topic of market dynamics that most people are missing, let’s talk about what’s happened to real estate investors over the past few years. According to PropStream, a software platform used by real estate professionals, there were approximately 80,000 wholesalers operating in the U.S. market at the peak in 2020-2022. That number has collapsed to around 10,000 today. If you’re not familiar, a wholesaler is someone that contracts on properties (usually below market value) and then assigns or sells that contract to an investor or flipper.
Think about that. An 87.5% decline in just a few years.
But it’s not just wholesalers. Home flippers have either been put on the sidelines or forced out of business entirely. Syndicators who were betting on ultra-low interest rates and cap rates staying in the basement forever have either been blown out or are hanging by a thread. The boom of overly optimistic investors deploying into every facet of real estate is over.
This has been a game of attrition rather than a 2008-style purge, and I suppose that’s a good thing, or at least less chaotic. But make no mistake: the market continues to correct. Sellers across the country have finally come to the realization that 2021 prices are a thing of the past. This is evident not just in commercial real estate, but in existing home sales where we’ve seen massive amounts of inventory withdrawn from the market as sellers refuse to accept reality.
Current Market Conditions: A Case Study
Our current project at Confluence Townhomes illustrates these dynamics perfectly. It’s been a slow grind to get units sold, but the key insight is this: we have almost no competition from existing home sales and no competition from new home construction in our immediate market and price range.
This isn’t about being in a hot market. This is about correct pricing and patience in a market where transaction volume is historically low. When you’re not competing against a flood of existing inventory or spec builders, the game becomes about pricing discipline and staying power.
New Construction: Pockets of Opportunity and Oversupply
New construction inventory tells an interesting regional story. Nationally, new home inventory has climbed to levels not seen since 2009, with some markets showing over 7 months of supply. In certain Sun Belt markets like Florida and Texas, builders are sitting on substantial inventory and offering aggressive incentives to move units.
But this isn’t uniform. Plenty of markets, including many mountain markets, remain tightly constrained. The key takeaway is simple: there’s significant oversupply in markets where building is easy and undersupply in markets where it’s difficult. If you can build the right product and remain patient, there are solid returns to be had.
What About Rate Cuts and First-Time Buyer Programs?
I suspect we’ll see bursts of activity if mortgage rates become meaningfully lower. My guess is this administration will make a significant push to lower mortgage rates specifically, and I really think there will be some sort of program targeting first-time homebuyers in 2026.
But let’s be realistic about what this means. Even if rates stay in the low-6% range, we’re still dealing with home prices that are fundamentally elevated relative to incomes. These programs might create short-term activity spikes, but they won’t change the underlying dynamic: housing affordability is a multi-year balancing act between flat prices and rising wages.
“Inflation is always and everywhere a monetary phenomenon.”
– Milton Friedman
On inflation: absent a dramatic change in money supply growth, I expect inflation to remain relatively stable. I know many people think tariffs will be meaningfully inflationary, but I disagree. Inflation is a monetary phenomenon, and tariffs have zero impact on money supply. Policy changes affect relative prices; monetary policy affects the number of dollars competing for those goods or services.
The Fortius Approach: Discipline Over Volume
So where does this leave Fortius Capital in 2026?
We are always in the market for deals. We’re not going to stretch on pricing. We’re not going to make bets on interest rates coming down or speculate on outsized rent growth. That’s not who we are, and the graveyard of syndicators who made those bets over the past few years should serve as a stark reminder of why discipline matters.
What we will do is focus on the same thing we’ve always done: find asymmetric opportunities where we see limited downside and we feel strongly that we can force appreciation.
Our focus in 2026 remains on:
- RV Parks & Manufactured Housing: We’ll continue pursuing quality RV park assets with an emphasis on parks that serve as extended-stay products. The combination of affordable housing shortage and mobile/flexible living demand creates a compelling opportunity set.
- Entry-Level Housing in Mountain Markets: he markets we operate in still face a significant housing shortage, particularly for entry-level product. With fewer competitors in the market and sellers becoming increasingly realistic, we’re positioned to capitalize on value-add opportunities that meet real demand.
- Geographic Expansion: We’re looking at opportunities across the broader mountain states, with particular interest in markets where employment is driven by stable, long-term industries rather than discretionary tourism.
I don’t know if opportunities will be plentiful in 2026. What I do know is that we’re positioned with liquidity, realistic expectations, and a proven ability to execute in difficult environments. Markets that reward discipline over leverage and fundamentals over speculation are exactly the kinds of markets where Fortius thrives.
Rental Rates
One dynamic worth noting: residential rental rates have slowed considerably and backed off in many markets. After years of aggressive rent growth, we’re seeing supply finally catch up with demand in certain areas, particularly in multifamily. This matters because rental comps inform our underwriting on workforce housing and manufactured housing deals. We’re being very careful not to underwrite deals based on rent growth that may not materialize. Stable or slightly declining rents in our markets are fine if we’re buying right and our basis supports the current rent structure.
I don’t see cap rates compressing in this interest rate environment and rental rates have likely peaked for now. To me that means appreciation will be muted in most markets. Many more marginal operators will be forced out as their expenses grow but not their top line. For us, that’s not a problem. That’s the environment where discipline and operational excellence matter most. Where fundamentals drive returns. Where patient capital wins.
As always, I’m deeply grateful for your trust and partnership. I look forward to seeing how this all unfolds, and hopefully capitalizing on few opportunities along the way.
Mike Pearson
President
Fortius Capital Partners
