In this episode of the REconomy Podcast™, Chief Economist Mark Fleming and Deputy Chief Economist Odeta Kushi revisit their 2026 outlook and discuss where the housing market is headed in the second half of the year. The conversation unpacks why stability in a volatile year represents real progress, how nearly five million missing home sales represent demand deferred rather than demand destroyed, and what the slower-moving dynamics of jobs, incomes, demographics and supply signal about what’s ahead.

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Listen to the REconomy Podcast™ Episode 146:

"Housing is a bit like an ocean. Every day there are waves – Fed meetings and inflation reports, treasury yields and geopolitical developments – and those waves can feel very dramatic, but underneath them is the tide, the slower moving forces that ultimately determine where the market's headed." - Odeta Kushi, Deputy Chief Economist, First American

Transcript: 

Odeta Kushi: Hello, and welcome to episode 146 of The REconomy Podcast, where we discuss economic issues that impact real estate, housing and affordability. I'm Odeta Kushi, deputy chief economist at First American, and here with me is Mark Fleming, chief economist at First American. Hey Mark, can you believe we're already halfway through 2026?

Mark Fleming: I know, somehow we're already at the midpoint of the year. I suppose time flies when you're watching treasuries and mortgage rates. I don't know.

Odeta Kushi: Or when every week seems to bring another major headline about inflation, the Fed, AI or geopolitics. It really does seem like we've packed several years' worth of news into six months.

Mark Fleming: That's certainly what it feels like. You know, exogenous shock after exogenous shock, as economists like to say.

Odeta Kushi: That's right. And, you know, doing a mid-year outlook always sort of reminds me of MapQuest.

Mark Fleming: MapQuest. I can't wait to see how this is relevant outside of just getting your 2000s reference in before my '80s one.

Odeta Kushi: Hear me out, it's a totally fair analogy. Do you remember when MapQuest printed out 20 pages of directions? You know, halfway through the trip, you weren't really focused on the next turn. You really just wanted to know if you were still on the right highway or on the right page of the MapQuest directions. That's really what today's episode is all about. We're halfway through the year, so rather than focusing on every twist and turn in the data, we're asking whether the housing market is still on the path we expected.

Mark Fleming: I do, I do, yes. Okay, a stretch, but we'll count this one. There are plenty of twists and turns from week to week, but what really matters is whether the underlying direction has changed. That's especially important in housing because it's easy to get distracted by what's happening this week and lose sight of what's been happening over the past several years in the market.

Odeta Kushi: Exactly. And last year, around this time, we argued that the housing market had likely found its floor and begun what we called a slow march toward balance. Today, we thought we'd do a bit of a reality check, asking what's changed and, perhaps more importantly, what hasn't.

Mark Fleming: And I think that's the key question because if you only looked at the headlines over the last several months, you'd think everything had changed. But when you look underneath those headlines, the fundamentals have actually been quite consistent.

Odeta Kushi: Which brings us to today's theme. Housing is a bit like an ocean. Every day there are waves — Fed meetings and inflation reports, treasury yields and geopolitical developments — and those waves can feel very dramatic, but underneath them is the tide, the slower-moving forces that ultimately determine where the market's headed.

Mark Fleming: Okay, so just to be clear, we went from a map analogy here to a nautical one. Fine, fine.

Odeta Kushi: I knew you were going to call me out on that. Will you just let me have my analogies, please? I promise from here on out we'll stick to just one, maybe. So, let's start with the obvious question. A year ago we said housing had found its floor. Looking back, how did that call hold up?

Mark Fleming: I think it held up pretty well. Housing certainly didn't rebound in a dramatic fashion, but it didn't deteriorate either. Existing-home sales remain subdued by historical standards, hovering around a 4 million annualized pace. But activity has stabilized and is running modestly above year-ago levels.

Odeta Kushi: Which is important because, while stability may not sound very exciting after several years of significant disruption, stability is actually progress.

Mark Fleming: Exactly. And we've also seen inventory improve, affordability edge modestly higher and purchase demand show signs of life. None of that adds up to a boom, but it does suggest that the market has been gradually moving toward better balance.

Odeta Kushi: And I think the good thing is that's happened during a year that has been anything but boring. Let's talk a little bit about the waves. See, that's me sticking to an analogy.

Mark Fleming: Mm-hmm. Excuse me. I'm impressed. You're really keeping this analogy afloat. Afloat? Good one, good one, right?

Odeta Kushi: Okay, I see my analogy has inspired a pun. All right, back to the topic. Waves, lots of them. Artificial intelligence continues to dominate economic conversations, and investment is now significantly contributing to economic growth. We've had geopolitical tensions that pushed markets around seemingly overnight. A new Federal Reserve chair has shaped expectations for monetary policy. Inflation has remained stubborn while growth expectations have shifted.

And that's a lot for consumers and economists to digest.

Mark Fleming: I'm still digesting. Exogenous shock waves. Ooh, that is a good one. And mortgage rates have reflected all of that uncertainty. We've seen rates move higher on inflation concerns, then fall as geopolitical tensions eased, only to rise again as markets adjusted expectations for the Fed. If it's not one wave, it's another.

Odeta Kushi: Yeah. Which is a good reminder that mortgage rates are not driven by a single factor.

Mark Fleming: Exactly. Inflation expectations matter, treasury yields matter, fiscal policy matters, investor sentiment matters. That's why mortgage rates can change quickly from week to week.

Odeta Kushi: I'd say maybe the easier question is what doesn't matter? But here's the interesting part. Despite all that volatility, housing hasn't fundamentally changed course. And why is that?

Mark Fleming: Because housing ultimately responds to a familiar set of forces: jobs, incomes, demographics, supply and financing conditions. Those fundamentals move much more slowly than financial markets do. As we write about in our mid-year outlook piece, which you can find at firstam.com/economics, they're the tide beneath the waves.

Odeta Kushi: All right, so let's start with the labor market because I think it's easy to exclusively focus on mortgage rates.

Mark Fleming: It is, but mortgage rates are only one side of the affordability equation. Households also need income, job security and confidence. Over the last couple of years, one of the biggest concerns wasn't just that mortgage rates were elevated, it was that the labor market might weaken significantly and remove demand from the housing market altogether. Fortunately, that deterioration really just hasn't happened.

Odeta Kushi: Yeah, in fact that's one of the reasons that the Fed started to cut rates, right? Obviously, inflation was getting back to normal, but also in fear of a labor market deterioration. But instead, labor market conditions appear to be stable.

Mark Fleming: That's right. Job creation is still happening, incomes continue to grow and, importantly for housing, people generally still feel confident enough to make those long-term financial decisions like buying a home.

Odeta Kushi: And we do know that household income growth has been running ahead of national house price growth recently, which has helped improve affordability, at least around the margins.

Mark Fleming: It's not enough to solve the affordability challenge overnight, but every little bit is certainly helping.

Odeta Kushi: And the data does show that those affordability gains seem to be pulling some buyers and sellers off the sidelines. In fact, one of the ideas I find most compelling is that housing demand never actually disappeared over the last several years. It's sort of accumulated.

Mark Fleming: Ooh, I like that term: accumulated. We'll come back to that in a minute. I agree. Buying a home is a financial and lifestyle decision. People don't decide to get married because mortgage rates are lower. They don't have children because rates have fallen 50 basis points. They don't relocate for a new job based solely on financing costs. Life keeps happening. Higher mortgage rates delayed many housing decisions, but they didn't necessarily eliminate the reasons why people buy homes.

Odeta Kushi: Yeah. I think that's an important distinction, not to dismiss that affordability is crucial, but to highlight that life keeps happening and that results in some housing market turnover.

Mark Fleming: And when you consider the demographics, millennials remain America's largest generation and are still firmly in their prime home-buying years. At the same time, the oldest members of Generation Z are now also entering the housing market.

Odeta Kushi: And when you compare today's market with what was normal before the pandemic, something really interesting emerges. Before COVID, existing-home sales averaged roughly 5.4 million annualized sales. Since 2022, we've consistently fallen well below that pace.

Mark Fleming: Which means those transactions didn't happen. But when you add up that cumulative shortfall, the market is now missing nearly 5 million existing-home sales relative to pre-pandemic norms. That's a pretty big number.

Odeta Kushi: It's almost like demand has been waiting patiently in line.

Mark Fleming: Exactly. People often think of demand as something that disappears in housing. That's rarely true. More often demand gets deferred. Eventually, many of those households still want or need to move.

Odeta Kushi: Now, of course, demand is only half the story. Supply has been moving in a more encouraging direction too.

Mark Fleming: And that's probably been one of the most important developments over this past year. Inventory has continued recovering from the extraordinarily low levels we experienced after the pandemic. Nationally, we're still below pre-pandemic norms, but the gap has narrowed dramatically.

Odeta Kushi: Yeah, I mean at one point inventory was like 40% below normal. Today it's much closer at about 12% below, which is pretty meaningful progress.

Mark Fleming: That is indeed meaningful. More inventory means more choice for buyers. It also means less intense competition and, therefore, slower house price appreciation and, in many markets, more negotiating power for those buyers.

Odeta Kushi: But, as we know, real estate is inherently local, and that inventory improvement has not been evenly distributed across the country.

Mark Fleming: That is a great point. Many markets across the South and the West have experienced much larger inventory gains than markets in parts of the Northeast and Midwest. Housing always has been and remains very local because, after all, it is also an immovable good.

Odeta Kushi: Good point. A unique feature of the housing market. One thing we'll continue watching, though, is that inventory normalization has slowed recently.

Mark Fleming: That is a great point and something to definitely keep an eye on in the second half of the year.

Odeta Kushi: Which, believe it or not, brings us back to mortgage rates. They're still the elephant in the room. For many homeowners, moving still means exchanging a mortgage rate that begins with a three for one that begins with a six, which is a difficult financial decision to make.

Mark Fleming: Yes, the infamous lock-in effect. And while everyone would like mortgage rates to move lower, it's really less likely than everyone expected at the beginning of the year. Persistent inflation concerns, elevated federal deficits, increased treasury issuance and a more cautious Federal Reserve all suggest we may remain in a higher-for-longer mortgage rate environment.

Odeta Kushi: Which doesn't necessarily mean that rates will never decline between now and the end of the year.

Mark Fleming: That's correct. It simply means we should probably expect plenty of exogenous shock waves along the way.

Odeta Kushi: Yeah, still keeping the analogy afloat, I see.

So where does all of this leave us for the second half of the year?

Mark Fleming: I think the outlook remains broadly similar to where we were a year ago. Housing is still constrained by mortgage rates, but it is increasingly supported by stronger fundamentals. The labor market remains stable, demographics remain favorable, inventory has improved and affordability has inched higher. None of those factors point to a housing boom, but they also don't point to a housing collapse.

Odeta Kushi: Housing tides continue to bring rebalancing.

Mark Fleming: Ha, can we keep this one afloat through to the end of the episode? Housing is riding the fundamentals tide. Count it, count it.

Odeta Kushi: I wonder if anyone's keeping track of how often you're saying afloat. You're clearly trying hard. There will undoubtedly be more waves before the year's over. We'll get more inflation reports and Fed meetings and geopolitical surprises, more days when mortgage rates move dramatically for reasons that seem to change by the hour.

Mark Fleming: But those are the waves. The direction of the housing market will continue to be determined by the tide beneath them: jobs, incomes, demographics, supply and financing conditions. Those fundamentals change much more slowly.

Odeta Kushi: So, perhaps that's our mid-year takeaway. Don't mistake every wave for a change in the tide.

Mark Fleming: Uh-oh, I've got it. As Blondie reminded us in 1980, the tide is high. But as economists, we're just holding on. No? No? That was really bad.

Odeta Kushi: I was wondering how long it would take you to work in an '80s song. And I think with that it's a good time to sail away, sail away, sail away.

Mark Fleming: Oh my goodness, trying to come after my 1980s title.

Odeta Kushi: I honestly don't think I could if I tried, but I will not pass up an opportunity to quote an Enya song. And I think that's actually a great place to end the episode, with me taking the generational crown and extending the analogy all the way to the end. Thank you.

And thank you for joining us on this episode of The REconomy Podcast. If you have an economics-related question you'd like us to feature in the future, you can email us at economics@firstam.com. And, as always, if you can't wait for the next episode, you can subscribe to our Econ Center at firstam.com/economics or connect with us on LinkedIn or Instagram. Until next time.

Thank you for listening, and we hope you enjoyed this episode of The REconomy Podcast from First American. We're pleased to offer you even more economic content at firstam.com/economics. This episode is copyright 2026 by First American Financial Corporation. All rights reserved.

This transcript has been edited for clarity.