In this Thanksgiving-themed episode of the REconomy Podcast™, Chief Economist Mark Fleming and Deputy Chief Economist Odeta Kushi carve up the 2025 housing market trends they’re thankful for. From easing mortgage rates and improving affordability to growing inventory and demographic tailwinds, they highlight ‘grateful eight’ reasons for housing market optimism.
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“Financial considerations and affordability matter, but lifestyle decisions do too. It’s those decisions that drive the choice to buy or rent. As each generation ages into its prime home-buying years, they also reach lifestyle milestones closely tied to ownership — marriage, children, and family growth. So thankful for the demographic tailwinds that will support homeownership demand for decades to come.” — Mark Fleming, chief economist at First American
Odeta Kushi - Hello and welcome to Episode 129 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. Well, Thanksgiving is just around the corner, and today we’re carving up a holiday-themed episode — the housing market things we’re thankful for in 2025.
Mark Fleming - Hi Odeta, that’s a great idea. So, what’s on today’s spread?
Odeta Kushi - Is that a mortgage spread Thanksgiving pun?
Mark Fleming - Of course. Starting strong. I couldn’t help myself. I’m a cornucopia full of housing market thankful ideas.
Odeta Kushi - I see the eyes rolling already.
Mark Fleming - Guilty.
Odeta Kushi - Yes, indeed. But your pun actually gives us a pretty good starting point for the episode, because the first thing I’m grateful for is lower mortgage rates. Now, rates aren’t low, but they’re meaningfully lower than where we began 2025. Back in January, the average 30-year fixed rate hit about 7 percent, and as of early November, we’re at roughly 6.2 percent. That’s a pretty big swing for monthly payments and buyer psychology.
Mark Fleming - Yep. In ‘80s terms, we went from Under Pressure to something more like Take It Easy. A drop of about three-quarters of a percentage point adds real house-buying power, even if prices haven’t fallen outright nationally. I didn’t get away with it, did I? Okay, okay. But the Eagles, I mean, you can’t pass up on the Eagles. And this is not to be confused with my Philadelphia Eagles, of course.
Odeta Kushi - No, one of those was definitely a ‘70s song. Different kind of Eagles, still not an ‘80s song, so it doesn’t count. But someone has to keep you honest. Now, that decline in mortgage rates alone, at today’s national median household income and assuming a 20 percent down payment and a 33 percent debt-to-income ratio, increases house-buying power by about $36,000.
Mark Fleming - I know. That’s pretty significant. Even small declines can unfreeze decisions for move-up and first-time buyers. At a rate of about 7 percent, roughly 32 percent of renters can afford the current median-priced existing home of $415,200. But, at a rate of 6.2 percent, that share goes up to 36 percent. A full four-percentage-point increase. That’s a lot of people.
Odeta Kushi - That’s some progress. And there’s one more rate-related thing I’m thankful for, and that’s the mortgage-Treasury spread narrowing. That’s the gap between the 30-year, fixed-rate mortgage and the 10-year Treasury yield. In calmer times, that spread usually runs about 1.7 to 2 percentage points. In 2022 and 2023, volatility and risk premiums pushed it closer to 3 percentage points. Today, it’s closer to about 2.1 — still elevated, but clearly better.
That matters because if the spread were still at 3 percentage points, mortgage rates would be a touch above 7 percent. If it were back at a normal 1.7, they’d actually be about 5.8 percent given today’s 10-year. Instead, we’re sitting around roughly 6.2 percent. Not ideal, but moving in the right direction. The takeaway here is encouraging: we don’t need a big drop in the 10-year yield for mortgage rates to ease further. Continued narrowing in the spread alone can help.
We don’t expect that spread to snap back to 1.7 percentage points anytime soon because we still see prepayment risk and rate volatility in the mix. Most in the industry expect rates to stay above 6 percent this year and into next, but I think that compression has been welcome progress throughout 2025.
Mark Fleming - Indeed. Less free-fall, more friction coming out of the system, and every tenth of a point helps buyers’ monthly payments. Thankful indeed.
Odeta Kushi - Very true. All right, Mark, you’re next. What aspect of the housing market are you thankful for?
Mark Fleming - We’ve talked a lot about mortgage rates, but there are two other key aspects of affordability that have also improved. House-price appreciation has slowed down, and household incomes have continued to grow. Specifically, income growth has actually outpaced house-price growth, which is also contributing to affordability gains.
Odeta Kushi - That’s definitely something to be thankful for. In one of our latest Real House Price Index blog posts, we noted that affordability improved in 39 of the top 50 markets we track. Affordability has generally improved the most in markets with the greatest increases in active listings, which actually brings me to yet another thing we’re grateful for: higher inventory.
Mark Fleming - Yes, exactly. Remember the blink-and-it’s-gone days of 2021?
Odeta Kushi - Oh, I sure do. But gone are those days. Today, buyers have a lot more options. According to our analysis of Zillow data, active listings have risen year over year for 21 straight months. In September, active inventory was up roughly 16 percent from a year earlier. The share of price reductions was 26 percent, up from the pre-pandemic two-year average of 22 percent. And the median number of days on market for homes increased from 20 days to 26 days — a little more breathing room.
Mark Fleming - Mm-hmm.
Odeta Kushi - Now, we know that inventory is still below 2017 to 2019 norms, but that direction is really helpful for shoppers.
Mark Fleming - Yeah, definitely better than before. But I’m reminded of the old adage, “It takes 90 days to sell your home.” We’re still about one-third of that, so things are moving pretty quickly. Translation: fewer bidding-war flash mobs, more weekend house hunting without the FOMO.
Odeta Kushi - Yes, I do remember those days. That inventory growth is actually coming from higher existing and new-home inventory, though the growth is slowing.
Mark Fleming - Wait, Debbie Downturn is back. This is a thankful episode. Remember, no “buts” in this one.
Odeta Kushi - I know, I know. I’ll get out of my own way. Okay, back to thankful. So far on our housing-things-we’re-thankful-for list, we’ve got lower mortgage rates and a narrower mortgage-rate spread, improved affordability, and better inventory. I think it’s your turn again. What else are you thankful for this year?
Mark Fleming - We’ve talked a lot about the financial side of housing demand, but demand also depends on demographics and lifestyle decisions — one of our favorite topics. The thing I’m grateful for is that demographics are still supportive of housing demand. Despite affordability being historically strained, the market is still generating about four million annualized existing-home sales, and a lot of those are driven by the life events we’ve talked about before in episodes 119, 126, and 128.
Odeta Kushi - I think so. Demographics are such a hot topic. Our analysis shows that millennials, the largest adult generation, are in their prime home-buying years. As they convert education and career gains into ownership, their household count rises modestly — from about 36 million in 2025 to nearly 40 million in the early 2050s.
Mark Fleming - Demographics. Exactly. So exciting.
Odeta Kushi - More interestingly, the share of home-owning households grows much faster. Homeowners are projected to increase by about 10.6 million as the ownership rate climbs from 51 to 73 percent for millennials. So, a modest rise in households and a strong renter-to-owner shift will provide a long, steady tailwind for housing demand through the 2050s before it levels off.
Mark Fleming - That’s right. And next comes Generation Z, which is just beginning its housing journey as they leave school and set out on their own. Gen Z households are projected to expand from about 13 million in 2025 to nearly 40 million by the late 2040s. Their move into ownership also comes later, much like millennials, as education and career milestones are met. The Gen Z ownership rate will rise from 25 percent this year to about 66 percent by 2060, lifting owners to roughly 27 million. Momentum will persist through the 2050s, then taper around the 2060s as the cohort passes its peak-buying years.
Odeta Kushi - And much further out — you might need binoculars for this one — Generations Alpha and Beta form the next wave. Their presence will be limited until the mid-2030s, when the oldest begin moving out on their own and forming households. By the 2050s, ownership will increase as incomes rise and family formation accelerates, just as millennials move past their peak buying window and Gen Z demand begins to slow.
Mark Fleming - Exactly. Financial considerations and affordability matter, but lifestyle decisions do too. It’s those decisions that drive the choice to buy or rent. As each generation ages into its prime home-buying years, they also reach lifestyle milestones closely tied to ownership — marriage, children, and family growth. So thankful for the demographic tailwinds that will support homeownership demand for decades to come.
You know, that kind of sounds like a Dickensian Christmas Carol moment — the ghost of future Christmas, maybe.
Odeta Kushi - Let’s not get ahead of our holiday selves, although I’m already putting up my Christmas lights, so I shouldn’t be talking. While we’re on homeownership, there’s another important thing we should be thankful for — homeownership itself. It might be more difficult to attain given today’s affordability challenges, but it remains a powerful wealth builder.
Mark Fleming - That’s true.
Odeta Kushi - Homeownership is still the primary driver of wealth creation in this country. According to our analysis of the 2022 Survey of Consumer Finances, the median homeowner has 38 times the household wealth of a renter. Homeowners are wealthier than renters at every income level.
For example, for families in the bottom 20 percent of incomes, the median net worth was nearly $147,000 for homeowners and only $3,400 for renters. More importantly, housing is the single largest component of net worth for most households.
Mark Fleming - Huge differences. And to add to that, after the recent years of inflation, most Americans buy a home using a 30-year, fixed-rate mortgage. So, the inflationary environment we find ourselves in doesn’t affect them the same way. Their biggest expense — the principal and interest payments on their home — has remained fixed instead of growing.
Odeta Kushi - That’s a great point. There’s also some good news for renters. According to our analysis of Zillow rent data, rent growth has slowed to 2.3 percent as of September, which is lower than the pre-pandemic four-year average.
Mark Fleming - So many things to be thankful for, especially considering that rent growth peaked at nearly 16 percent in 2022.
Odeta Kushi - Yes, that’s a big improvement from those days. I think we’ve got time for one last thing to be thankful for. What do you think?
Mark Fleming - Let’s see — we’ve talked about renting, owning, demographics, supply. I think we should end with home building. It’s been a tough time for builders with elevated material costs, financing costs, and affordability challenges, but they’ve adapted by building smaller, more attainable homes and offering incentives to sell them.
Odeta Kushi - That’s a really good point. The median square footage of a new home built in the second quarter of 2025 was the lowest since 2009. New-home sales made up about 17 percent of all sales in August, the highest share since 2003. Builders are offering rate buy-downs and even price cuts to meet buyers where they are. In many ways, that shows how they’re adjusting to the market to move inventory.
According to the NAHB HMI October survey, 38 percent of builders reported cutting prices that month. The average price reduction rose to 6 percent after averaging 5 percent for several months previously. The last time builders reduced prices by 6 percent was October 2024. The use of sales incentives hit 65 percent in October. So, thankful for home-builder ingenuity and their ability to make new homes more affordable for potential buyers.
Mark Fleming - Yes indeed. We’ve covered a lot. I think we need to count how many things we’ve actually been thankful for.
Odeta Kushi - Well, there was lower mortgage rates, affordability improvements, more inventory, demographics and “life-happens” sales, the wealth-building benefits of homeownership, the fixed-mortgage inflation hedge, slowing rent growth, and builders adapting to the market. Did you count eight? Okay, we’ll go with eight.
Mark Fleming - Eight it is. Quite a spread, if you’ll pardon the pun. And with that, it’s time to get the turkey fryer out — and remember the physics lesson about displacement. Because it’s my tradition of cooking turkeys — something I’m very thankful for.
Odeta Kushi - All right, well on that note, happy Thanksgiving, everyone. I hope you all get to use your own turkey fryer.
Mark Fleming - And in true Garfield Thanksgiving spirit, save room for pie. That would be pecan pie for me.
Odeta Kushi - Is that an ‘80s reference? Garfield?
Mark Fleming - Yes, yes it is.
Odeta Kushi - Of course. Thank you everyone 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, follow us on X — I’m @OdetaKushi, he’s @FlemingEcon. Until next time.
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This transcript has been edited for clarity