In this episode of the REconomy Podcast™, Chief Economist Mark Fleming and Deputy Chief Economist Odeta Kushi shine a light on the housing market’s scariest headlines, exposing the myths shrouding reality. They explain why slowing price growth, a modest uptick in delinquencies, and low sales volumes point to a market that’s steadily rebalancing, rather than crashing.

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Listen to the REconomy Podcast™ Episode 128:

“A national wave of foreclosures usually requires two things: a loss of income and lack of equity. While the labor market has softened a bit and prices have fallen in some markets, the unemployment rate remains historically low, and the equity cushion is still significant. In the second quarter of 2025, U.S. households owned about $36 trillion in equity — a record high.”
— Odeta Kushi, Deputy Chief Economist at First American

Transcript: 

Odeta Kushi - Hello and welcome to episode 128 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, even though this episode is publishing just a few days after Halloween, it is our Halloween episode.
So we’re taking a flashlight to some spooky headlines and questioning whether the housing market is actually haunted. From “prices are about to crash” to “foreclosure wave incoming” to “sales are dead forever,” we’ll try to separate creaks in the floorboards from actual structural cracks.

Mark Fleming - Woo hoo hoo! Perfect timing for myth-hunting and busting. And when the market seems haunted, I have to do this — “Who you gonna call?” Ghostbusters, of course (1984). Obligatory ’80s reference achieved… maybe not the only one.

Odeta Kushi - I kind of walked right into that one, to be honest. It’s perfect for a Ghostbusters reference. But I would say today we’re more like Bubble Busters than Ghostbusters. And here’s our path through the haunted house…first, why a house-price slowdown isn’t necessarily a bust; second, what to make of distress and foreclosure chatter; and third, why sales remain low and what that really signals.
So, let’s start with prices. Our very own seasonally adjusted First American Data & Analytics House Price Index shows that annual house-price appreciation has slowed for 20 consecutive months to the slowest pace since 2012. And of the top 50 markets we track, 21 of them had year-over-year price declines, with the most severe being San Francisco at -6.6 percent and Tampa at -5.9 percent.

Mark Fleming - Exactly.

Odeta Kushi - That means the majority—29 markets—still had positive annual appreciation, with the strongest being Cleveland at 7.4 percent and Louisville at 6.7 percent.

Mark Fleming - And there’s strong regional variation happening in today’s market. Traditionally more expensive markets, like San Francisco, or pandemic-era darlings, like Tampa Bay, are now seeing price declines, while traditionally more affordable markets, such as Cleveland, are still growing. If we were to generalize these regional trends, we’d say the Northeast and Midwest are outperforming, while prices in the West and South are flat or even declining.

Odeta Kushi - Right, and those price moderations or even declines are helping to make some of those previously overheated or super-expensive markets more affordable.

Mark Fleming - That’s right. House-price deceleration—or in some cases a slow decline—is normal late-cycle housing-market behavior, not a sign of doom. The 2021-2022 market was white-hot. Demand was pulled forward, supply was scarce, and price growth overheated. Now, there are more active listings, a higher share of price cuts, and longer time-on-market consistent with a market adjusting, not collapsing.

Odeta Kushi - And remember the buffers that cushion prices—strong homeowner equity, mostly fixed-rate mortgages, and still historically low resale supply relative to pre-pandemic norms in some markets.

Mark Fleming - So, while headlines may focus on price declines, it’s not a repeat of the Global Financial Crisis house-price crash…thank goodness…but rather a readjustment to a higher-interest-rate, slower-paced market. Myth busted. And that brings us to our second spooky myth.

Odeta Kushi - It’s actually a very good segue to our second spooky myth, because it’s all about those “here comes the foreclosure wave” headlines. Yes, measures of distress have risen from the rock-bottom levels of the pandemic era, and you can find pockets where affordability is most stretched. That’s often the case for some FHA or VA loan borrowers, or where local economies have softened, showing higher delinquency and more foreclosure filings than a year ago.

Mark Fleming - Mhmm.

Odeta Kushi - According to the September ICE Mortgage Monitor, the national delinquency rate fell by two basis points to 3.42 percent—six basis points below a year ago and 58 basis points below its September 2019 pre-pandemic level. While there was a 23 percent increase in foreclosure starts in the third quarter compared with a year ago, they’re still down 18 percent from the same quarter of 2019.
The number of loans in active foreclosure is up 18 percent year over year, but overall foreclosure volume remains about half of 2019 levels. FHA loans account for the majority of that rise, making up 38 percent of active foreclosures, roughly half of the annual increase in starts, and 80 percent of the rise in active foreclosures.

Mark Fleming - Yes, but the report also says that, even as there’s an increase in distress among FHA loans, we’re returning to more normal levels after several years of artificially low foreclosure volume. Remember that government-issued loans, like FHA and VA, tend to serve more first-time and lower down-payment buyers, so the average borrower has less equity and a thinner financial cushion. That means when budgets get tight, early-stage delinquencies show up more in these lending programs.

Odeta Kushi - Okay, but this isn’t necessarily a sign of systemic risk. A national wave of foreclosures usually requires two things: loss of income and lack of equity. While the labor market has softened a bit and prices have fallen in some markets, the unemployment rate remains historically low, and the equity cushion is still significant. In the second quarter of 2025, U.S. households owned about $36 trillion in equity — a record high.
Distress has increased in some pockets of the country, but we’re still far from the gory scenes people imagine when they hear the word “foreclosure.” That said, we are watching the labor market closely. It remains resilient, but it can turn quickly. Layoffs aren’t flashing red right now, though the hiring rate is quite low, leaving us stuck in a sort of frozen labor market.

Mark Fleming - You know, Debbie Downturn just can’t resist peeking around the corner of all the good things you just said. Fair point though — if the labor market continues to cool, distress could increase, especially for those who bought at the top of the market and may now be experiencing price declines. That’s the key combination we watch for – job loss and lack of equity.

Odeta Kushi - She’s always there. Very true. Before we move on to our third spooky topic, I should note that The Wall Street Journal recently wrote about Florida’s Cape Coral housing market, which now has the highest share of homeowners underwater in the country — nearly 8 percent owe more on their mortgages than their homes are worth. That’s due to a mix of lower prices, fewer job opportunities reducing demand, and higher insurance premiums. So, again, there are pockets of distress, but it’s not a nationwide foreclosure wave.

Mark Fleming - Agreed. So, no house-price crash, no widespread foreclosure wave — maybe this haunted house isn’t really that scary after all.

Odeta Kushi - Not so fast, Downturn. Sales activity is the part of the haunted house where the floorboards really creak. Even as mortgage rates have eased a bit, we’re still dealing with affordability constraints, economic uncertainty and, of course, that persistent lock-in effect. Most existing homeowners still hold rates well below current market levels, so new listings are arriving slowly.

Mark Fleming - True, but existing-home sales have hovered around four million annually for a couple of years now, limited by affordability, low inventory, and that lock-in effect. Still, there’s a little positivity hiding in this haunted house. Affordability has been challenged since mortgage rates surged in 2022, but more recently the trend is encouraging. On a year-over-year basis, affordability has now improved for six consecutive months. That improvement comes from slower price appreciation, income growth, and a modest easing in mortgage rates. The gains are broad, with 35 of the top 50 markets showing annual improvements and 48 of 50 improving over the previous month. No Debbie Downturn here!

Odeta Kushi - That’s promising news. While home sales remain sluggish, that boost in affordability from modestly lower rates and stronger income growth does seem to be helping. Contract closings on existing-home sales increased about 1.5 percent in September, the highest in seven months at a rate of 4.06 million. Similarly, the Census Bureau’s August data on new-home sales showed roughly 800,000 seasonally adjusted sales — the fastest pace since early 2022. I expect that number to be revised slightly lower, but it’s still an encouraging sign of some buyer life.

Mark Fleming - That’s right. We don’t expect existing-home sales to return to normal this year.

Odeta Kushi - Who’s Debbie Downturn now?

Mark Fleming - In a recent blog post, we noted that before the pandemic, existing-home sales averaged about 4.1 percent of total U.S. households. Applying that long-term rate to today’s household count implies an annualized pace of roughly 5.4 million sales — about 35 percent higher than the current 4 million level. That’s a pretty big gap. It reflects suppressed market participation rather than a shortage of potential movers. While we don’t expect to reach that 5.4 million number this year, or even next, housing turnover still happens because life happens. Life events like marriage, growing families, job changes, and divorce have always driven home-sale activity and always will. Broad-based momentum back to normal will take time as life unfolds, affordability slowly improves, the rate-lock effect eases, and economic uncertainty fades. The housing-market recovery is underway, but it’s just beginning and will take time.

Odeta Kushi - Since we’re in the middle of a seasonal change, I’ll think of it as a thaw rather than a spring bloom. Activity will pick up first at the margins — move-ready buyers, people driven by life events, and renters weighing the rent-versus-own trade-off. As spreads normalize, rate volatility cools, and confidence improves, we should see more upward momentum. You don’t necessarily need mortgage rates with a five handle to see sales climb; what you need is stability, certainty, and inventory.

Mark Fleming - That’s really the point. Sales will grind higher, slowly but steadily, whether rates drop or not. So to recap – first, price deceleration isn’t a bust. It’s the market rebalancing as inventory and days on market normalize.

Odeta Kushi - Second, distress has increased from the pandemic-era lows, especially in government-insured segments that serve borrowers with thinner financial cushions. But serious delinquencies and foreclosures remain low by historical standards thanks to strong equity positions, a resilient labor market, and better underwriting.

Mark Fleming - And finally, the creakiest floorboards in this not-so-haunted house: sales are still subdued by affordability and the lock-in effect, but there’s evidence of a gradual pickup as rates ease and builders help bridge the gap. If that sounds less like a horror movie and more like a choreographed dance number, we’ll call it the housing market’s Thriller. 1982 — the greatest music video of the MTV era, back when they actually played videos on MTV. We’ll add that one to The REconomy playlist, which is available on Spotify. Shameless plug complete.

Odeta Kushi - I knew you were going to bring up Thriller somehow. Let’s wrap this up before the fog machine sets off the sprinklers. That’s it for today. Thanks for joining us on this episode of The REconomy Podcast. If you have an economics-related question you’d like us to feature, you can email us at economics@firstam.com. And, as always, if you can’t wait for the next episode, follow us on X — I’m @OdetaKushi, he’s @FlemingEcon. Until next time.

Mark Fleming - Exactly. It’s just a Thriller. Vincent Price — so good.

Odeta Kushi - It really is a great music video.

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