In this episode of The REconomy Podcast™ from First American, Chief Economist Mark Fleming and Deputy Chief Economist Odeta Kushi examine growing concerns regarding the health of the housing market, finding that distress is rising and prices are declining in some markets, but the broader fundamentals underpinning housing remain strong.

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Listen to the REconomy Podcast™ Episode 117:

“The housing market might be under some pressure, but there are still-strong fundamentals preventing housing distress from turning into a housing crash. So, maybe not a foreclosure wave, maybe a foreclosure trickle, if you will.” – Odeta Kushi, deputy chief economist at First American

Transcript:

Odeta Kushi - Hello and welcome to episode 117 of The REconomy Podcast, where we discuss economic issues that impact real estate, housing and affordability. I'm Odeta Cushi, deputy chief economist at First American and here with me is Mark Fleming, chief economist at First American. Hey Mark, have you, by any chance, kept up with recent housing market headlines?

Mark Fleming - Hey Odeta, there are a lot, it depends on which ones you are referring to.

Odeta Kushi - Well, specifically, I'm referring to recent predictions about house price declines. And, as you know, house price declines make people really nervous, especially people who lived through the Global Financial Crisis, or GFC, as we’ll henceforth refer to it. Those ones are still pretty fresh.

Mark Fleming - As someone who did actually live through the GFC, I can actually confirm that that is true. Our own data is showing that house price growth has slowed and could continue to slow later this year. According to our April First American Data & Analytics repeat sales House Price Index, that's a mouthful. House prices nationally reached another record high in April, but...

Odeta Kushi - That was a mouthful.

Mark Fleming - Exactly. The annual growth rate has slowed to its lowest level since 2012, right at the end of the Global Financial Crisis.

Odeta Kushi - Alright, well don't leave us hanging. Where does that leave us in terms of house price growth?

Mark Fleming - Just 2% year over year, so pretty close to zero.

Odeta Kushi - Wow, so that single-digit growth must mean some markets are actually experiencing price declines on an annual basis.

Mark Fleming - Right you are. And I think that's where some of this concern stems from. In our Real House Price Index, or RHPI, we seasonally adjust the First American Data & Analytics House Price Index and then adjust it for mortgage rates and household income levels to come up with our RHPI affordability measure. And when we recently analyzed this data, we found that affordability is actually improving in some markets and price declines are actually a big reason for that improvement.

Odeta Kushi - An interesting good news, bad news story there, if you think about it. It's all about perspective. Well, house prices, as we know, sit at the intersection of supply and demand. My little supply and demand chart here. When demand exceeds supply, prices rise. When supply overshoots demand, prices may fall as sellers compete for buyers. As of March, house prices declined in 13 of the top 50 metro markets compared with a year ago.

Mark Fleming - That's right. So, six of those 13 markets are in Texas or Florida, two regions that saw rapid pandemic-era expansion. Prices have actually declined the most in Tampa, Florida, in March falling by nearly 5% year over year, with the decline driven by a combination of persistently high mortgage rates, cooling demand and rising inventory. Again, the supply and demand.

Odeta Kushi - Yes, for those that aren't seeing us do this, we just keep making a supply demand chart with our fingers. But that really means that the majority of markets are still experiencing price growth. There are 13 markets with year-over-year declines, but the remainder are still in neutral or positive territory. And, at the other end of the spectrum, Cincinnati led the country with over 9% annual price growth. And that's a result of tight inventory in a relatively affordable market continues to support strong price gains in Cincinnati. Now these examples highlight a diverging housing landscape where market fundamentals are pulling prices in different directions across the region. But that begs the question, is this level of dispersion normal?

Mark Fleming - I'm so glad you asked because I think we went into this analysis with one perspective that had to be revised, so I'm so glad you asked. To assess how geographically fragmented the housing market has become, we calculated the monthly gap between the highest and lowest annual house price growth rates among the top 50 markets from 1992 through March of this year. We focused only on months where at least one market was experiencing price declines while others were seeing gains – periods of true directional divergence. We found…bum bum bum bum, drum roll…Surprisingly, and having to update our priors, that the current level of dispersion is not historically that extreme. In fact, house price growth divergence peaked during the housing boom of 2004, when Las Vegas was surging by 46.5% year over year, while Pittsburgh was actually declining by 4.6%.

Odeta Kushi - Ugh. Whoa.

Mark Fleming - A spread of over 51 percentage points. We were not expecting this result.

Odeta Kushi - No, we were not. And can I just give a shout out to the fact that I watched you become a Bayesian right in front of my eyes with the updating of the priors?

Mark Fleming - I know it! Updating our priors! That's right.

Odeta Kushi - Yes, we did have to update our priors. We went into this analysis thinking that this was going to be a historically anomalous period, we were going to have a level of divergence that we haven't seen in the past. But over the full historical period, the average divergence between the strongest and weakest markets was just over 21 percentage points, whereas In March 2025, that difference is about 14 percentage points. So below average and far from unprecedented. Hence, we had to update our priors. So, we're seeing price declines in some markets, price increases in other markets, and that variation isn't historically abnormal. But all of that analysis doesn't quite get to why people are so worried about the housing market.

Mark Fleming - So very true. I think what people are really worried about is this distress in the housing market. And part of that is driven by house price declines. Remember in the Global Financial Crisis, we all remember the price decline distress cycle that many markets experienced. And so, when people are seeing prices falling, they're immediately jumping to, is this going to be another GFC foreclosure crisis? But here I think it's important to remember that housing foreclosure is the result of a dual trigger. First, the homeowner has to suffer an adverse economic shock, such as loss of income, serious illness, or death of a spouse, leading them to become delinquent on their mortgage. However, not every delinquency turns into a foreclosure. With enough equity, a homeowner has the option of selling the home. The reverse is also true. If the homeowner has little or no equity in their home, but suffers no financial setback that leads to that delinquency event, there's no need for a foreclosure. Both distress and lack of equity, that which we saw in the Global Financial Crisis, or these dual triggers, are necessary for foreclosure.

Odeta Kushi - But we just said that house prices are declining in some markets. So, is that setting off one of those triggers?

Mark Fleming - Well, yes and no. Consider that if you purchased a home pre-pandemic or over the pandemic period, you're probably sitting on a lot of housing equity. We mentioned earlier that prices declined the most in Tampa, Florida by over 5%. But consider that from the pre-pandemic February 2020 point, right before the pandemic began, through the peak of house prices in December of 2023, house prices increased by more than 70% in Tampa. Exactly. So for many, or even most, Tampa homeowners, even in a declining price market, there's a large equity buffer that they have because 70% up, then 5% down, you're still well up.

Odeta Kushi - A really great point. But, of course, for those who purchased in 2023, 2024, or even 2025, 
they might actually be experiencing a lack of, or even negative equity, due to the recent price declines. And we do know that FHA and VA loan delinquency rates are rising, particularly impacting recent borrowers. So, there are some pockets of potential distress. But, yes, generally speaking, equity levels are high. In fact, in Q4 2024, U.S. households owned $40 trillion worth of owner-occupied housing value, just over $13 trillion in debt on those homes, and the remaining $35 trillion in equity. So, the national LTV is very low at about 28%. Consider that in 2012, that national LTV was 54%.

Mark Fleming - True, so that's one reason why this time it's different. Always be wary when someone says that, especially an economist. Yes, house prices in some parts of the country are declining and that might drag the overall house price index lower, but equity levels are still high on average. But then comes, what about the other trigger?

Odeta Kushi - Yes, whether a homeowner has a financial setback. And that's a function of several factors. But let's start with the most obvious, having a job, the labor market, right? And we all know by this point that the labor market has been very resilient with the unemployment rate at 4.2% as of April, which is historically low. But what about the homeowners’ unemployment rate more specifically?

Mark Fleming - That's a great question, Odeta, because historically, the renter unemployment rate has remained nearly twice as high as the homeowners unemployment rate. According to our analysis in 2010, the unemployment rate for renters was nearly 15%, while for owners it was much lower at 8%.

Odeta Kushi - Hmm. And then the latest available 2024 data, the unemployment rate for homeowners was just below 3%, while for renters it was nearly 6%.

Mark Fleming - So, for both renters and homeowners, but especially for homeowners, the labor market picture remains very, very strong with low unemployment. But there are some cracks in the foundations to be mindful of. Notably, hiring has slowed considerably, and we do expect the labor market to continue to cool this year.

Odeta Kushi - That's right, the job openings and labor turnover survey data reveals the difficulty job seekers face in finding work with the hiring rate near 2013 to 2014 levels, when the unemployment rate was closer to 7%.

Mark Fleming - But keep in mind that a lot of today's homeowners refinanced into record-low mortgage rates and have lower monthly payments relative to incomes than in past cycles.

Odeta Kushi - Right, so some of those events we mentioned earlier, like the death of a spouse, maybe you're capable of weathering that financial storm because you were able to refi into that lower interest rate payment. As of Q4 2024, according to Federal Reserve data, the mortgage debt service payment as a percent of disposable personal income was 5.8%. This is a little bit lower than it was pre-pandemic Q4 2019 at 5.9 % and definitely lower than in 2007 when it was nearly 9%.

Mark Fleming - Yes, those were indeed rough times. But this means that, even if inflation is squeezing budgets, the mortgage payment itself, for most, is less of an issue.

Odeta Kushi - Yes, or at least the P and I in the P-I-T-I.

Mark Fleming - Great point. Principle and interest stays fixed, but we are seeing increases in taxes and, of course, increases in insurance, which is another challenge for homeowners. We've written about that recently. Check out the Econ Center for more information. So smooth.

Odeta Kushi - Very smooth plug. Yes. Now another difference from the GFC is that we're not worried about a sudden reset in rates due to teaser rates expiring.

Mark Fleming - True, no teaser rate shock for those who remember the concept of interest rate shock to contend with this time around. In the Global Financial Crisis, it was a significant contributor to that distress trigger we've just been talking about.

Odeta Kushi - And speaking of the GFC, another difference today is that credit quality is different. Today's borrowers are just better risks. According to the New York Fed, the average credit score at mortgage origination in the first quarter of this year was just over 770. Consider that in 2006, and the lead up to the GFC, the median credit score was 707.

Mark Fleming - And we're not seeing the high share of subprime mortgages that we saw back then.

Odeta Kushi - I mean, in fact, you could say we've sort of overcorrected a bit as access to credit is harder now, especially for those first-time home buyers.

Mark Fleming - Mm-hmm. But from a system stability standpoint, of course, that means much less likelihood for large amounts of defaults.

Odeta Kushi - Right, and no more exotic products, such as interest-only loans, balloon payments, negative amortization, etc. The most common product today is the 30-year, fixed-rate mortgage, stable and predictable.

Mark Fleming - That's true, but on that note, because some have talked about concern over the rise of adjustable-rate mortgages, the adjustable rate share of loan applications is around 7% as of May, down from nearly 37% back in 2005. So adjustable-rate mortgages (ARMs) were much more common then. But remember, at the height of the housing boom, ARMs were all the rage and included additional elements that added risks, such as those features you just mentioned, negative amortization, payment option, interest-only option, teaser rates that would cause rate shock. Today's ARMs are not like those of the past. It's essentially the same as a 30-year, fixed-rate mortgage with one minor difference. Rates are just after an initial fixed period of usually five or seven years, which for many is around the length of time that they would be staying in the home anyway.

Odeta Kushi - Right, and typically you get a little bit of a lower introductory rate on that ARM as well. And, of course, the regulations that ARMs must adhere to today include parameters that help protect a consumer's ability to repay the loan. In other words, avoid that payment shock.

Mark Fleming - That's right. So, we've got more conservative loans, better credit profiles, a still-strong labor market, more homeowner equity, not necessarily a recipe for a foreclosure wave.

Odeta Kushi - That's not to say we don't expect housing distress to pick up. The labor market will likely continue to slow, and we do expect some pockets of the country to continue to experience price declines.

Mark Fleming - Yes, I'm reminded of this fact that the housing market may be under pressure. Queen, David Bowie, 1981. I mean, I'm not gonna sing it. I know listeners, you're waiting for me to sing it, but I'm not gonna sing it.

Odeta Kushi - Wow, a REconomy episode that doesn't turn into karaoke. Who could have guessed? Well, I think what you were trying to say there is that the housing market might be under some pressure, but there are still-strong fundamentals preventing housing distress from turning into a housing crash. So, maybe not a foreclosure wave, maybe a foreclosure trickle, if you will. And we will leave it there for today. Lots covered in today's episode. 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 follow us on X. It's @OdetaKushi for me and @MFlemingEcon for Mark. Until next time.

Mark Fleming - There's no way I could sing it as well as Freddie Mercury. I'm not even going to attempt to do that. Right? Right. Exactly. There's one thing I know that I'm not good at and that is singing.

Odeta Kushi - No. I think you do just as well, if not better. So much belief. Self-awareness is important.

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 2025 by First American Financial Corporation. All rights reserved.