How AI wealth is reshaping home prices
Featuring
A conversation with Dr. Selma Hepp and Allie Barefoot
While national home price appreciation appears to have hit astable, slow-moving floor of 0.8% year-over-year, the national average conceals a sharp economic divergence. While equity-rich buyers and AI wealth drive high-value tech hubs like San Francisco, budget-conscious first-time buyers are heading to the Midwest, accelerating price growth where homes remain affordable.
This structural divergence creates a severe purchasing power standoff, widening the gap between equity-rich repeat buyers and living by monthly payment first-time buyers.
Cotality's Chief Economist, Dr. Selma Hepp, joins Allie Barefoot to discuss Cotality's July Home Price Index report.
In this episode:
1:16 - What’s driving the current momentum in the U.S. housing market?
2:15 - How are underlying factors causing annual home price growth to accelerate this spring?
4:31 - How is AI and tech wealth fueling a massive rebound in high-cost West Coast markets?
8:45 - Will the divide between equity-rich buyers and first-time homebuyers continue to widen?
Transcript:
Allie Barefoot: Welcome back to Data in Context. I'm Allie Barefoot with Cotality. This episode is part of a mini series where we breakdown Cotality's monthly Home Price Index Report. The U.S. housing market is officially building momentum, but it's doing so in a way that's completely splitting the landscape of buyers into two distinct camps. According to Cotality's newly released July 2026 Home Price Index Report, featuring May data, shows year-over-year national price appreciation accelerated slightly to0.8%, which is up from April's 0.6%. On paper, it looks like a slow, synchronized grind. When you look past the national numbers, you find a clash between an affordability gap and a wealth gap. Budget-minded buyers are driving massive surges in the Midwest, while AI-backed tech wealth is super charging select coastal metros. To help us break down this data, I'm joined today by Cotality's Chief Economist, Dr. Selma Hepp. Let's put the data into context.
Welcome back to Data in Context, Selma. Always a pleasure tohave you on the show.
Dr. Selma Hepp: Thank you so much for having me back, Allie.
Allie Barefoot: Yeah, we're talking about the July 2026 Home Price Index Report featuring May data, and I want to look at the baseline acceleration first. In your opinion, what is happening under the surface that's caused annual price growth to firm up this spring compared to last year when we saw price drops?
Dr. Selma Hepp: Yeah, what we are seeing this spring is not necessarily a broad-based boom. It is acceleration in home price appreciation, but it's really about a market that has found a firmer footing after last year's softness. What's important to note is that last year's April surge in mortgage rates, coupled with macroeconomic uncertainty and I think general disincentive, led to weakening in home price growth. We didn't see the same this year, so part of that acceleration this year also reflects a weaker base effect. But, you know, generally speaking, annual appreciation at this point illustrates a market in which inventories are still tight, but also where sellers are becoming more realistic on price. Importantly, this summer is, you know, been underscored by a market that, you know, in which demand has not disappeared. It's selective, but it has not disappeared. And households that can buy are concentrating in markets where affordability still works. So, a lot of Midwest, partially Northeast markets continue to see strong demand. And then also higher-income and equity-rich buyers are supporting demand in higher-cost markets. So, you know, the national number looks modest, but underneath there's a lot of movement and continued divergence.
Allie Barefoot: Yeah, and you mentioned there a little bit more about the affordable Midwest. And I want to focus a little bit more on that region because the state numbers, they're pretty remarkable right now.Illinois led the nation in year-over-year growth at nearly 6%, followed closely by Maine and Indiana. So why are these budget-friendly pricing tiers proving to be the primary economic engine right now?
Dr. Selma Hepp: Yeah, these markets are benefiting from the simple fact that affordability still matters most than anything else in this market. Buyers are very payment-sensitive, and in places like Illinois orIndiana, the combination of lower price points, relative stable job markets, and just better value is drawing that demand that has been potentially priced out elsewhere. The other thing to think about is that these markets did not experience the same pandemic-era price run-ups as we saw in some of the other markets, particularly in the Sun Belt and coastal markets. So they have less froth, in a way, to unwind from. Put it differently, Midwest is not necessarily overheating at the moment, it's just benefiting from being one of few places where the math still works for most buyers.
Allie Barefoot: And we know in economics, and really in life, there's always two sides of the coin. So the Midwest being one side, let's look at the other side of that, where we're seeing the absolute other end of the spectrum, which is on the West Coast. On paper, high-value regions look like they were struggling a little bit, but Cotality highlights San Francisco.It's showing an incredible 8.9% growth rebound, and the velocity of that rebound is wild. Can you talk to me a little bit more about that region?
Dr. Selma Hepp: Yeah, so much, most of this 8.9% increase actually we've seen over the course of last few months. And San Francisco is a really interesting example of how different cycle can be from a traditional affordability-driven recovery. This is not a market where a typical first-time homebuyer suddenly has a lot more purchasing power. It's nothing like that at all. We've actually seen not a lot of resetting in terms of home prices. We have seen relatively slower rate of home price appreciation throughout the pandemic in San Francisco, but now that that has turned into a wild rollercoaster ride again. But, you know, this rebound is being driven by wealth, it's being driven by stock market gains, AI confidence, and it's, you know, also again, still built on very limited supply of desirable homes. AI has added a really interesting layer to this story because it's supporting incomes, equity compensation, and expectation of future wealth in parts of the Bay Area, which has helped boost this rate of home price appreciation. So, you know, even though mortgage rates have not been lower and they continue to be a head wind, they are less binding for buyers who have substantial equity, have high incomes, and ability to make larger down payments, as is the case in SanFrancisco.
Allie Barefoot: Right, that makes sense. And when we look at the West Coast, we've looked at the Midwest as well, I kind of want to focus more so on the markets that seem to have run out of gas a little bit, per se. Cotality's report identifies a few notable cooldown metros where the short-term trend is completely rolled over. For example, Rochester, New York was along-term appreciation darling, but just printed a three-month decline of-1.8%. What is the data kind of signaling there?
Dr. Selma Hepp: Yeah, markets like Rochester show us that even some of the pandemic-era and affordability winners are not immune to buyer fatigue, in essence. Home prices in Rochester over the course of last five years have seen one of the strongest appreciation in country, so cumulatively since the beginning of the pandemic, home prices in Rochester are up 77%. Now, the three-month decline does not necessarily mean the long-term story has reversed, but it does tell us that buyers are pushing back in some way. When prices rise quickly in markets that were generally attractive because they were more affordable, they can, you know, eventually lose some of that advantage.And that's what is happening in Rochester, New York. We are also seeing more sensitivity to inventory changes, so even a modest increase in listing can cool price momentum when buyers are already stretched by mortgage rates, insurance costs, property taxes, and broad household budget pressures.
Allie Barefoot: Yeah, that's definitely an area I'm going to keep my eye on as we continue month-to-month with our Home Price Index reports. And looking ahead, Selma, until we see that sustained relief in mortgage financing costs like we'd previously mentioned, do you expect this deep wedge between equity-rich buyers and first-time homeowners to widen even further, or will regional inventory shifts finally force a leveling of the playing field a little bit?
Dr. Selma Hepp: Yeah, unfortunately, I do think the wedge is likely to persist. The reality is wealth accumulation accumulates more. So equity-rich buyers are simply operating with more flexibility, you know, they can trade down, they can make larger down payments, they can buy with less exposure to cost of financing. When on the other hand, first-time buyers are living and dying by monthly payment, you know. So with that in mind, you know, regional shifts do matter. In markets where supply is rising and sellers are adjusting expectations, buyers may regain some negotiating power. But the playing field in some way will still never truly even out until we see affordability improves significantly through some combination of lower rates, slower home price growth, stronger income growth, and just generally more supply of homes available for sale.
Allie Barefoot: Well, we'll have to definitely keep our eye on those lowering interest rates and hopeful that affordability will come back into play for not just one section, but all sections of home buyers. But Selma, thank you again for breaking down this data. It's always super insightful.
Dr. Selma Hepp: Thank you. Thank you so much for having me again, Allie.
Allie Barefoot: Thank you again to Dr. Selma Hepp for joining us here on Data in Context, and thank you so much for listening. If you haven't already, subscribe to Cotality's YouTube channel, and as always, if you want to find out more information, head on over to cotality.com.
