Split decision for local market builders

For much of the past decade, housing has been viewed through a national lens. At the national level, housing remains stuck in a slow-growth environment — demand is soft but stable, inventory is at its highest level since 2019, affordability remains near historic lows and population growth has slowed. Increasingly, however, the bigger story is not the national market but the growing divide between local markets. Our Housing Heat Map shows a widening performance gap across regions. In 2Q26, only 9 of the 55 major markets we track improved sequentially, while 31 deteriorated. On a year-over-year basis, 40 markets weakened. Despite this challenging backdrop, markets such as San Francisco, New York City and Chicago, which were weak only a few years ago, continue to rank among the strongest in the country.

Texas and much of the Southeast, which previously benefited from strong migration and job growth, have softened as inventory has increased and demographic tailwinds have moderated. By contrast, parts of the Northeast and California have proven more resilient. Florida is particularly notable: after being one of the weakest regions over the past year, markets such as Naples, Fort Myers, Sarasota, Miami and Port St. Lucie improved materially during the second quarter as home price trends, supply-demand dynamics and rental fundamentals stabilized. 

Several structural forces are driving this divergence. Recent Census data show population growth slowing across the U.S., driven largely by a 54% decline in net international migration, while domestic migration patterns across the Southeast have also cooled from pandemic-era highs. Texas and Florida continue to attract new residents, but inflows have moderated significantly from the outsized gains seen during 2021–24, while the Carolinas have remained relative beneficiaries of migration trends. At the same time, labor market conditions are no longer moving in lockstep across regions, and existing-home inventory and vacancy rates have increased, creating very different competitive environments depending on the market. In our view, housing is increasingly becoming a local story rather than a national one. 

The implications extend beyond home prices. Historically, builder exposure to stronger local housing markets has been highly correlated with financial performance. In our analysis, Housing Heat Map scores weighted by specific builder exposure exhibit a 74% correlation with current-period homebuilder return on equity (ROE) and an 86% correlation one period forward. While we expect industry ROEs to remain under pressure amid soft housing demand, elevated inventory levels, affordability challenges and a less favorable macro backdrop, performance is likely to become increasingly differentiated. We are already seeing evidence of this through product mix, with entry-level housing generally underperforming move-up and luxury segments as affordability constraints weigh more heavily on first-time buyers. As a result, builders with greater exposure to higher-income consumers, with presence in stronger markets in the Northeast, California and improving parts of Florida, and less reliance on entry-level demand, may be better positioned than their peers. In our view, investors may benefit from focusing less on broad housing headlines and more on geographic and consumer exposure, as both are becoming increasingly important drivers of builder performance.