In this episode of The REconomy Podcast™, Chief Economist Mark Fleming and Deputy Chief Economist Odeta Kushi explore four key dynamics that are shaping the outlook for the broader economy and the housing market, including macro-economic landscape, labor market shifts, housing supply and even artificial intelligence and productivity. While the broader economy remains resilient, structural challenges continue to shape housing affordability and market dynamics in the year ahead.

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Listen to the REconomy Podcast™ Episode 137:

“And we see some of this in our First American Data & Analytics tenure data. The length of time people are staying in their homes nationally has reached historic highs, which reflects that same lack of mobility. All of that brings us back to supply. One consistent theme across the housing discussions was that supply constraints are largely local. Zoning, permitting timelines, density restrictions, and parking requirements all matter. Federal policy can encourage reform, but governors, mayors, and local councils really do most of the work.” – Odeta Kushi, Deputy Chief Economist at First American

Transcript: 

Odeta Kushi - Hello and welcome to episode 137 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. The full First American Economics team recently attended the National Association for Business Economics 42nd annual Economic Policy Conference right here in Washington, D.C. It was wonderful to spend some time with colleagues across the industry, and it was equally great to hear directly from policymakers, researchers and economists on everything from the labor market to AI to our very own housing.

Mark Fleming - Indeed, it was a great opportunity for all of us to get together as a team. And what's more fun than hanging out with a bunch of other economists, right? There were so many sessions it was hard to keep up. But what I thought was useful was how neatly the major themes of the conference all seemed to loop back to housing. Or maybe that was just me. Inflation, labor markets, productivity, energy constraints and local supply all matter for where housing goes next.

Odeta Kushi - Or at least we're going to make it all tie back to housing.

Mark Fleming - Exactly. Connecting everything to housing may, in fact, just be our thing.

Odeta Kushi - That's right. Today we'll organize our takeaways from the conference around four key themes. The first is the macro backdrop and the Fed. Obviously we can't go too far without talking about the Fed. The second is the labor market. The third is mobility and supply. And the fourth is AI and productivity. We'll highlight the housing implications when relevant. We won't cover every panel because there was simply too much, but we'll hit the parts that help interpret housing market signals this year.

Mark Fleming - Okay, I'm ready. Are you ready?

Odeta Kushi - All right, I'm ready. Let's start at the top. The conference reinforced that the economy has been growing at a reasonably solid pace and much of that growth in recent months has been consumer driven.

Mark Fleming - That's right. We heard from Austan Goolsbee, president and CEO of the Federal Reserve Bank of Chicago, who emphasized that consumption was the principal growth driver in the second half of last year. Real consumer spending was running at nearly a 3 percent annualized pace, and, importantly, it was broad based across income groups.

But he also cautioned that AI investment, while visible and impressive — roughly $600 billion — isn't the whole story once you account for imports and broader demand dynamics. When you subtract out the imported content of data center investment, the net contribution to GDP is smaller than headlines might suggest. Imports, in this case, the chips and other components we buy from abroad, don't count as part of gross domestic product.

Odeta Kushi - And that matters for housing. Durable, broad-based consumer spending supports household finances and housing demand. A resilient consumer is foundational to housing stability.
But the caveat that kept coming up is inflation. Core inflation remains above target. Goolsbee noted that core PCE is around 3 percent and was clear that stalling out at 3 percent is, in his words, not a safe place to be. Before additional rate cuts, the Fed needs clear evidence that inflation is moving sustainably back to 2 percent.

Mark Fleming - Yes. Three is not the new two. We're not doing that. Another nuance that stood out to me was the emphasis on services inflation, excluding housing. Goods inflation has improved and lower energy prices have helped, but core services inflation has been stubbornly high. That's the component that tends to be stickier and more closely tied to wages, which raises concerns about a wage inflation spiral. There was also discussion about whether monetary policy is currently restrictive. When inflation is still near 3 percent, the federal funds rate may not be as tight as it appears on paper, which complicates the policy calculus.

Odeta Kushi - And for housing, if inflation meaningfully eases — particularly in services — we could see the Fed cut rates more quickly and mortgage rates drift lower, which would help affordability. But, if services inflation stays sticky, rates could remain around where they are now and keep pressure on affordability. As we've mentioned on several episodes, affordability is not just about mortgage rates. It's also about house prices and income. Even if mortgage rates stay flat, affordability can improve if income growth continues to outpace price growth. And affordability has been slowly improving.

Since you mentioned income, let's talk about the labor market. The labor market sessions were full of nuance. We kept hearing the phrase ‘low hiring, low firing.’ Headline payrolls were weak last year, but the unemployment rate remained historically low, suggesting we are near the breakeven pace of job creation rather than in a classic cyclical downturn.

Mark Fleming - And that's an important distinction. When labor force growth slows, whether due to immigration changes or demographic shifts, the number of jobs needed to support stable unemployment also falls.

So lower payroll numbers don't automatically signal labor market imbalance or recession. Real wage growth remains positive, which supports affordability. Unemployment is still historically low, which supports mortgage performance and reduces the odds of a wave of distress.

Odeta Kushi - The low-hire, low-fire environment makes for a less dynamic labor market. You have limited churn and limited mobility, and businesses still appear cautious. They're not aggressively expanding payrolls, but they're also not shedding workers in mass. Earlier in the conference, during the housing panel, one point that came up was that younger adults between the ages of 25 and 34 aren't forming independent households at the pace we might expect. Many are living with parents or with roommates. When household formation is depressed, it can hide some of the true decline in homeownership among prime-age cohorts who have actually formed households.

Mark Fleming - That's right. Those would-be renter households would add to the denominator of the homeownership rate calculation. Since you brought up the housing panel, which as a real estate economist was one of my favorites, the moderator asked each panelist to describe today's housing market in a word or phrase. The answers were interesting. You had hopeful, exciting, ho-hum year ,but with upside potential driven by policy, unequal, and stuck.

Odeta Kushi - That's quite a range, but I think it captures the current moment. Ho-hum reflects the idea that nationally the market looks steady, rather than spectacular. Sales volumes remain muted, inventory is historically constrained in many markets, and mortgage rates are certainly higher than the ultra-low levels of the pandemic era. But unequal reminds us that housing outcomes are highly distributional. Homeowners who locked in those very low mortgage rates are sitting on substantial equity and relatively low monthly payments. Renters and first-time buyers face a very different reality.

Mark Fleming - And stuck, I think, was particularly powerful. In the late 1940s, roughly one in five Americans moved each year. Today, it's closer to one in 13. That decline in mobility reduces turnover, keeps inventory tight, and exacerbates affordability challenges. When people don't move, homes don't list. When homes don't list, supply stays tight. And, when supply stays tight, prices remain under upward pressure.

Odeta Kushi - And we see some of this in our First American Data & Analytics tenure data. The length of time people are staying in their homes nationally has reached historic highs, which reflects that same lack of mobility. All of that brings us back to supply. One consistent theme across the housing discussions was that supply constraints are largely local. Zoning, permitting timelines, density restrictions, and parking requirements all matter. Federal policy can encourage reform, but governors, mayors, and local councils really do most of the work.

Mark Fleming - Mm-hmm. That's right.

Odeta Kushi - Then, of course, filtering works over time. New construction at the higher end eventually frees up housing further down the distribution. It's a slow process. One point that was made during the housing panel was that we need to build housing at all price points, because this filtering concept ultimately helps ease affordability in the long run.

Mark Fleming - That's right. Even high-end housing ultimately creates more housing stock across the market through filtering. Housing markets, unfortunately, don't adjust with the click of a mouse. They adjust with hammers and permits.

Odeta Kushi - Okay, so check ‘80s reference, check dad joke, and moving right along. Now I think it's important that we move on to a topic that came up in every single session without fail. Even in between sessions during coffee chats and evening receptions, this was the topic of the day. Care to wager a guess?

Mark Fleming - This is such a difficult one. I really don't really know. Could it be AI?

Odeta Kushi - That's the one. AI was the conference's dominant theme. What stood out to me was actually how nuanced the discussion has become. Often, we think in black and white terms. Either it's all going to be great or it's all going to be dismal. But the conversations at the conference were much more nuanced. Governor Lisa Cook referenced Bob Solow's famous line that he could see the computer age everywhere except in the productivity statistics. That question still hangs over us. Are we about to see AI show up meaningfully in productivity data? Or are we overestimating the near-term impact?

Mark Fleming - And, of course, economics does such a good job of measuring productivity. There is a component of the classic productivity models called total factor productivity that is essentially everything that we couldn't fully explain. It's kind of like the economic magic button, if you will.

Odeta Kushi - Well, in the case of AI, some believe it will be magical. But more seriously, a consistent message from the conference was that AI is reshaping job tasks more than it is eliminating broad swaths of jobs. Practically all jobs have at least some task that humans are better suited for than AI. Even though the technical potential is large, real world adoption takes time because firms have to redesign workflows, invest and retrain workers. So adoption will take time.

Mark Fleming - And there was also discussion of the “canaries in the coal mine” research from the Stanford Digital Economy Lab, which showed early signs that recent graduates, particularly in computer science and data fields, are facing more difficult labor market conditions. Employment for early career workers in the most AI exposed occupations has weakened. But, even there, the question remains: is it causality or correlation? Is this AI displacement, or simply a post pandemic correction after the tech hiring boom?

Odeta Kushi - Well, I heard two different interpretations at the conference. One is that firms may be substituting away from new graduates when experienced workers are available because AI can perform some entry level tasks. Another interpretation is that AI tools may help new graduates ramp faster and narrow the experience gap. Separately, usage-based research from AI platforms suggests productivity gains depend heavily on the user’s skill in framing questions and evaluating outputs. Taken together, it points less to broad job elimination and more to task redesign.

Mark Fleming - That's right. Garbage in, garbage out, right? But, is there a housing connection here somewhere? We're talking a lot about AI. What about housing?

Odeta Kushi - Of course there is. We'll always find the housing connection. I think about this through three main channels. First, productivity and income. If AI boosts productivity growth even modestly, that compounds over time and supports income growth. And income growth is the long-run driver of housing demand. Second, regional investment. AI data centers and related infrastructure are geographically concentrated. That can create localized housing demand in certain metros, especially where energy and grid capacity support expansion. Third, skills and labor supply. If entry level job pathways change, the timing and stability of household formation may change as well. Delayed labor market entry can delay household formation, while productivity driven wage growth could accelerate it. And, to put it in ‘90s terms, if AI delivers productivity gains hopefully it means more money, more opportunity, and not just more problems.

Mark Fleming - If we step back, the conference painted a picture of a housing market that is steady, but mixed. Broad consumer spending continues to support housing fundamentals. Inflation remains the key wild card for interest rates. The labor market is stable, but less dynamic. Mobility has declined and supply remains the structural constraint behind most affordability challenges. While AI may reshape the broader economy over time, today's housing challenges still come down to something tangible: how many homes we build, where we build them and whether households can ultimately afford them.

Odeta Kushi - I think that's a really good note to end on.

Mark Fleming - Yeah, one last thing. Should we add the disclaimer here? Some parts of this episode may have been produced, edited or created by the AI that we're training to be a witty, ‘80s referencing real estate economist podcast host. Just kidding. Or am I?

Odeta Kushi - Well listen, for now the bad puns and ‘80s and ‘90s references are entirely our own. But, maybe one day, it will be a Mark and Odeta AI-based podcast. That day is not here yet. Thank you all 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 Economics Center at firstam.com/economics or connect with us on LinkedIn. 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 2025 by First American Financial Corporation. All rights reserved.

This transcript has been edited for clarity.