The great geographic rebalance in US real estate

Transcript:

‍Allie Barefoot: I’m Allie Barefoot with Cotality, and this is Data in Context. This episode is part of a series where we break down Cotality’s monthly Home Price Index Report.

We’re witnessing a massive geographic rebalancing play out in real time. In parts of the Midwest and Northeast, severe inventory shortages are keeping a relentless floor under prices. Meanwhile, former Sun Belt boomtowns are watching inventory pile up as buyer leverage returns. And then there are hyper-local demand shocks. Take a single multi-billion dollar AI infrastructure project: it can transform the housing demand in one market even as broader regional trends are pointing in the opposite direction.

To help us decode the data from the August Home Price Index Report featuring June data, I’m joined by Cotality’s Senior Principal Economist, Molly Boesel. Let’s put the data in context.

Molly, thank you so much for hopping in here. You’re actually filling in for Dr. Selma Hepp, who’s normally on this call with me, but thank you for answering these questions for us.

Molly Boesel: Yeah, thanks Allie. I’m happy to be here.

Allie Barefoot: Of course. Let’s go on ahead and start by talking about the August Cotality Home Price Index Report featuring June data, and let's start with the big picture here: the national headline. That number shows a modest acceleration, up about 1.2% year-over-year. But you’ve emphasized that the U.S. housing market is no longer moving in just one single direction. So what is driving this geographic rebalancing?

Molly Boesel: Yeah, yeah. So, you know, when prices are rising by like 10% nationally, almost every market’s moving up. But we’re down to 1.2%. It’s those local fundamentals—like jobs, inventory, affordability, supply constraints—all of that come into focus. So some markets we’re seeing posting pretty strong gains, while others are declining. Um, you know, we talk about housing like a national number, but housing’s always been local. Uh, but a lot of that local variation is way more visible when we’re only growing by 1.2% overall.

Allie Barefoot: Right. And to kind of focus a little bit more on localized regions, some of the top-performing states—the Midwest, the Northeast—they’re dominating the leaderboards. Illinois is up 6.4% year-over-year, Connecticut up 6.0%, and even Nebraska almost at that 6% mark as well, and with Indiana also coming in around that 6%. You know, why are these regions holding up so well?

Molly Boesel: Yeah, a lot of it just comes back to inventory. Uh, so the Midwest and Northeast markets, we just haven’t seen this increase in homes for sale like we’ve seen in parts of the South and the West where prices are falling. Um, where there aren’t enough homes available for sale, that does put a floor into price with that buyer competition.

Now, when we’re thinking about the different regions, each one—the Midwest and Northeast—they’re kind of a different story, right? The Midwest, uh, relatively more affordable than, uh, the coastal markets. And in the Northeast, uh, a lot less about affordability, uh, just with the very limited supply. So in the Northeast, buyers may still be stretched, but there aren’t enough homes to choose from, so that keeps prices going higher.

Allie Barefoot: And even to your point, saying that, you know, while the Midwest and Northeast are looking great, it’s still localized. It still depends on what’s happening in that state, in that area.

And I want to talk a little bit more and move down South because we used to talk about overvaluation and overheated Southern boomtowns. But now those—those risk indicators are shifting a little bit more to the Northeast as well. So why are some of these strong-performing markets also becoming some of the most vulnerable, uh, to future price declines?

Molly Boesel: Yeah, well, they’re posting the strong price gains now because inventory’s so limited. But that doesn’t mean they’re immune to risk going forward. So prices are—can be rising faster than incomes, uh, affordability gets worse, and buyers just have to keep stretching. And at some point, they won’t be able to keep stretching anymore. Um, so, you know, that’s why we see that shift in those risk indicators. So, uh, the risk, uh, isn’t that the demand disappears, but just that prices get too high for the residents.

Allie Barefoot: That makes sense. And I want to focus on one specific state here: Texas, obviously. A lot to talk about with Texas. Um, we actually have a webinar on-demand on Cotality’s website talking about the data center boom and really how that affects the housing market.

In Texas in particular, there’s a stunning hyper-local anomaly in the data right now with Cotality’s Home Price Index Report. While Texas as a state has dipped negative 0.6% year-over-year, Abilene, Texas has surged 9.5% year-over-year, including a 2.1% jump in the last three months. What is going on in Abilene? Is it the AI boom? Can you talk to me a little bit more about that?

Molly Boesel: Yeah, so when we’re talking about a local story, Abilene is probably the best example I can think of as a local story. So in Texas overall, you mentioned, you know, you’ve got regions that are falling, uh, and that’s because inventory’s increased in those areas. But Abilene is just moving in a very different direction.

Like you said, you have the—the AI infrastructure investment. That’s been underway for quite some time now in Abilene. It’s been long-planned, but now, you know, it can bring those construction jobs, it can bring permanent jobs, it can bring more business activity. And when you do that, you have more housing demand, and you don’t necessarily have that inventory there to—to, uh, to take up that demand.

You know, interestingly enough, it’s not just the HPI. We’re seeing that demand pressure show up in the, uh, Cotality Single-Family Rental Index as well. So again, just a great reminder that even down to the state level, you can really miss what’s happening in some markets.

Allie Barefoot: Right, really depending on what’s happening in that municipality, how they’re dealing with, you know, AI booms and influx of jobs and things like that.

And it brings up another point that I want to talk to you about is a—a striking tale of two cities in Northern California. San Francisco rose 7.5% year-over-year, while Napa fell 5.0% year-over-year. And that’s actually down, I believe, 2.7% over the last three months. So why are these neighboring markets moving in opposite directions? I know you’ve talked a little bit about every market is different, but what are we seeing there?

Molly Boesel: Yeah, and that’s a good example of a great rebalancing, right? So, uh, even those neighboring markets can have, uh, different impact—or different outcomes. Um, San Francisco, they’re getting support from the renewed tech sector demand. Uh, and inventory remains tight there. Uh, you know, inventory’s always tight in San Francisco; there’s just not a lot of places you can build there.

Napa, it’s a different setup. Demand softened and inventory’s increased. Uh, so that’s why you’re seeing the softer prices. So even though they’re geographically close, their market fundamentals are very different.

Allie Barefoot: Mm. Like you said, really emphasizing that rebalancing on the same map.

So to close things out here, Molly, looking ahead through the rest of 2026, which, believe it or not, we’re almost—

Molly Boesel: I know, we’re getting close!

Allie Barefoot: What should market participants keep their eyes on as the market continues to rebalance?

Molly Boesel: Yeah, I’m really going to be watching two things for the rest of the year: the for-sale inventory and the inflation.

So, first on the inventory, markets where supply continues to build, we’ll probably see prices cool further. While markets where inventory’s tight, we’ll probably hold up better price-wise.

Now on inflation, that’s going to determine what happens with mortgage rates. If inflation continues to cool, that can bring mortgage rates down. Buyers are very payment-sensitive, right? So even small changes in mortgage rates, uh, can influence demand.

Uh, so that’s what I’ll be watching. But, you know, the main takeaway on our, uh, Home Price Index is that that slower national home price growth is making those local differences a lot more visible, and making us pay attention to things like inventory and affordability and all those local economic conditions.

Allie Barefoot: Right, and I’ll be sure to keep an eye out as we continue to publish the Home Price Index Report monthly and seeing how that data changes from month to month. Very important.

Molly Boesel: Yeah, yeah.

Allie Barefoot: Well, Molly, thank you again for stepping in here for Dr. Selma Hepp and answering these questions about the August Home Price Index Report, and I’m looking forward to having more conversations with you as we move towards the end of 2026.

Molly Boesel: Yeah, thanks Allie. This was fun, and I always enjoy talking housing with you.

Allie Barefoot: Thank you again to Molly Boesel for joining me on Data in Context, and thank you so much for watching. 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