The great divide
Featuring
For the past few years, the national real estate narrative has been largely uniform, characterized by overwhelmingly low inventory and skyrocketing prices. Now that narrative has fractured. While national housing inventory has reached its highest point since 2019 — signaling a much-needed broad market cooldown — the corresponding price adjustments are anything but universal. Instead of a synchronized shift, the market is bifurcated.
In the Sun Belt, states like Florida and Texas are finally seeing home prices soften as inventory begins to pile up. But while the national average saw prices dip nearly a full percentage point in September, specific Northeastern metros like Newark, Allentown, and Albany experienced firm, unexpected monthly price increases. What exactly is driving this sharp geographical divide?
The answers lie deep within localized data. In the Northeast, inventory remains severely constrained, stubbornly hovering 50% to 60% below pre-pandemic levels. Combine this historic undersupply with resilient, diversified labor markets and a strong wealth effect driven by rising equities, and the foundation for continued price appreciation is set. Furthermore, ongoing hybrid work dynamics are actively pushing buyers out of major financial hubs and into adjacent, relatively affordable suburban markets, keeping competition fierce where homes remain the scarcest.
In this episode of Data in Context, Cotality’s Allie Barefoot sits down with Cotality’s Chief Economist, Selma Hepp, Ph.D. to break down the latest Home Price Index report, explore the growing bifurcation between the Northeast and the Southeast, and identify the critical economic indicators to watch in the months ahead.
In this episode:
1:03 - Why the housing market is fracturing, with the Sun Belt cooling off while the Northeast heats up.
9:54 - What is actively fueling the unexpected price jumps in northern metros like Newark, Allentown, and Albany?
11:31 -The critical labor, inflation, and mortgage rate indicators that will dictate the upcoming spring homebuying season.
Transcript
Allie Barefoot: I’m Allie Barefoot with Cotality, and this is Data and Context. This episode is a part of a mini-series on our YouTube channel that breaks down and dives deeper into Cotality's monthly Home Price Index report. What we're seeing is housing inventory right now is actually at its highest point since 2019, and prices are slowly starting to soften in some parts of the country.
But in other regions, it kind of seems like they're going in a completely different direction. For example, if we look at states in the Southeast—Florida and Texas—they're actually seeing home prices decline, while states like Alaska and Wyoming are suddenly seeing home price growth. In fact, 20% of 411 metros across the country saw prices dip in September. Also, affordability pressure has yet to really let up. So the country is kind of telling two different tales at this moment in the housing market. To break down that data and dive deeper into it, we're going to be talking with Cotality's Chief Economist, Dr. Selma Hepp, Ph.D, to give us a little bit more insights as to where the housing market is right now and where it's heading. So let's go on ahead and jump into today's questions with Selma.
Selma Hepp, Ph.D: Yeah, it's actually a little bit of both. You know, those markets do have more diversified job labor pools and types of jobs. We're talking about finance, biotech, healthcare, and education sectors that all provide income stability. I also mentioned how rising equities are lifting household wealth and fueling that strong wealth effect that's particularly pronounced in areas surrounding financial centers like New York or maybe Boston and Philly—markets in which people are benefiting from rising equities.
What is different in the Northeast versus the South and Southeast, where we do have a slowing home price appreciation, is that the Northeast continues to see very strong supply constraints. Inventories continue to be limited, which is driving competition among buyers and pushing the rate of home price appreciation higher. We talked about where inventories overall are at the moment compared to where we were pre-pandemic, but in those northeastern markets, inventory remains 50% to 60% below 2019 levels. There is a significant undersupply.
At the same time, what's interesting in those markets is that you still have those hybrid work dynamics. Maybe people are not moving thousands of miles away, but they have access to more affordable, smaller markets that are adjacent to these big employment centers. That's where they're moving to. And those markets are actually notably more affordable than many other markets because they didn't see the same rate of home price appreciation during the pandemic. So now, there is some of that catching up happening because people are flocking to those markets.
Allie Barefoot: Yeah. And staying on topic here with the Northeast—a couple of metros that I've noted are Newark, New Jersey; Allentown, Pennsylvania; and Albany, New York. These are areas specifically where we saw monthly increases firm up in September, and they're up about 1% from that prior month. That feels like a pretty surprising turnaround and a pretty significant growth jump in just one month. What is happening in those specific metros that's fueling that surge in prices?
Selma Hepp, Ph.D: Yeah, it's important to note this 1% appreciation in just one month because nationally, home prices were actually down almost a percentage point in the month of September. So, it's notable to see that strong, continued appreciation because this is something those markets have benefited from. Again, it’s bifurcation. It’s those strong labor markets, the commuter appeal, and relative affordability compared to nearby major metro centers. Then there is demand from these hybrid workers who are looking for suburban value. They can get a lot more in these smaller areas like Albany or Allentown—much more "bang for your buck" in terms of the home you're buying.
Allie Barefoot: And my last question I have here for you, Selma—the way that we always end these episodes—is what is one key indicator that you're going to be watching in the housing market closely over the next few months that can tell us where the market is headed?
Selma Hepp, Ph.D: Well, first, let me emphasize the importance of government data that we're going to start receiving again. In last week's labor data, we saw that the slowdown may not be as significant as initially thought. The other important readings are inflation readings. While these two are important for the Federal Reserve in terms of determining their next step, they also tell us a lot about the sustainability of consumer spending.
Where are consumers currently in terms of how much they can spend and how much they're willing to spend? Will they be buying a home in the spring homebuying season? We also cannot under-emphasize the importance of where mortgage rates will be. Because the labor market is showing continued resilience, I think mortgage rates are also going to remain a little bit elevated. We saw over the course of last month or so mortgage rates coming down, which helped boost homebuying demand because we see buyers coming back as soon as rates drop. Depending on where mortgage rates end up settling, that will impact how we go into the next spring homebuying season.
Allie Barefoot: Yeah, absolutely. And, you know, I'll definitely be keeping an eye on the Northeast as well and seeing if maybe they share some wealth with the Southern states so we can try to balance this country out. Right now, it's feeling like a "tale of two countries" in how home price growth is showing up in some places and declining in others. There’s definitely going to be a few key factors here to watch over the next couple of months, which of course you will keep us in the loop with via your Home Price Index report. Selma, thank you so much again for taking this opportunity to break down that data and give us your insights.
Selma Hepp, Ph.D: Thank you so much for having me again, Allie.
Allie Barefoot: Thank you again to Dr. Selma Hepp, Ph.D, for joining us on our monthly mini-series breaking down Cotality's Home Price Index report. And thank you guys for listening. If you haven't already, go on ahead and subscribe to the channel. And if you want to find out more, as always, head to cotality.com.
