In this episode of The REconomy Podcast™ from First American, Chief Economist Mark Fleming and Deputy Chief Economist Odeta Kushi reconvene season 2 of The REconomy Summer School series with an in-depth discussion of the factors that drive the decision to buy a home – from lifestyle events like marriage, children, and career changes to economic realities like affordability, inventory, and credit constraints – and what that means for today’s housing market.

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Listen to the REconomy Podcast™ Episode 119:

“Even in a market with historically low affordability and lots of uncertainty, people are still buying homes because life happens.” – Mark Fleming, Chief Economist

Transcript:

Odeta Kushi - Hello, and welcome to episode 119 of The REconomy Podcast, our second episode in this year’s Summer School series, where we discuss economic issues that impact real estate, housing, and affordability. I’m Odeta Kushi, deputy chief economist at First American, and with me is Mark Fleming, chief economist at First American. Hey Mark, are you ready for our second class of the semester?

Mark Fleming - Hi Odeta. Yes, I’m ready. Though it's funny you’re calling it “Summer School,” since that usually sounds like punishment. But let’s go to class.

Odeta Kushi -Fair enough. But like any good instructor, let’s start with a quick recap for those who missed last time. In our first Summer School episode, we talked about headship rates — basically who forms households, when they do it, and why that matters so much for understanding housing demand.

Mark Fleming - That’s right. Today, we’re diving into the next piece of the puzzle: what drives people to pursue homeownership or delay it.

Odeta Kushi - Exactly. A lot of people assume that the decision to rent or buy is purely financial — that it all comes down to affordability or mortgage rates.

Mark Fleming - That’s true. But in reality, the first driver is lifestyle choices. The decision to buy is often sparked by life events: the need or desire for more space, stability, a change of location. Economic factors play a big role in whether that desire becomes reality, but it starts with life.

Odeta Kushi -Exactly. Think of it this way: lifestyle decisions create what economists call latent demand for homeownership.

Mark Fleming - Nice. Let's define that quickly. Latent demand is demand that exists, but isn’t being acted on because of some barrier. In this case, affordability or availability. It is potential demand that could turn into real demand if the conditions allow.

Odeta Kushi - Exactly. Economic factors determine whether that demand becomes effective demand — whether people can actually buy. So, today we’ll explore both sides: the life events creating that latent demand, and the economic realities that shape when and whether it becomes actual purchases.

Mark Fleming - And we've seen this play out over the last decade, especially with millennials.

Odeta Kushi - Yes, my fellow millennials — the largest generation in U.S. history — have been aging into their prime home-buying years. Demand surged, even as supply remained tight. Then the pandemic hit, accelerating demand, reshaping preferences, and changing migration patterns. Remote work, the search for space, lifestyle shifts — all of that pushed people to act on their latent demand.

Mark Fleming - Right. And now, even as things have settled a bit, those lifestyle choices — getting married, having kids, changing careers, retiring — continue to be major forces in the housing market. The timeline for these events has stretched out.

Odeta Kushi - Good point. First-time buyers today tend to be older. Marriage and parenthood often happen later — or not at all for some.

Mark Fleming - That actually reminds me of a group that’s been prioritizing homeownership in a big way. Beyoncé even has a song about them.

Odeta Kushi - Haha, I know where you’re going with this. All the single ladies?

Mark Fleming - That’s the one.

Odeta Kushi - Yes! Now that song is probably stuck in your head. But it’s a perfect segue. While marriage and family formation are highly correlated with buying a home, there’s also been strong demand from single women. Over 20 million single women owned homes in 2024, surpassing single men in both number and homeownership rate.

Mark Fleming - That’s impressive.

Odeta Kushi - It really is. Single women are increasingly flexing their buying power, often making significant financial sacrifices to purchase homes. They recognize the long-term benefits of wealth accumulation through price appreciation and equity gains.

Mark Fleming - Very important context. But back to what drives homeownership in general. Even with these trends, buyers today face big affordability challenges. High home prices, higher mortgage rates, and limited inventory all shape the market. But first and foremost, it’s life events that create that initial demand to buy.

Odeta Kushi - Exactly. That brings us to a framework we use a lot to explain this: the 5 Ds of homeownership demand.

Mark Fleming - Right. The 5 Ds help explain why people move and why they choose to buy instead of rent. They are diplomas, diapers, divorce, downsizing, and death.

Odeta Kushi - In that order. It’s a simple, but helpful framework. Let’s start with diplomas. Education boosts income, which drives housing choices. But there’s a nuance here — student loan debt is often blamed for blocking homeownership.

Mark Fleming - Yes. But our research shows that while student loan debt can delay homeownership for some, it generally doesn’t prevent it.

Odeta Kushi - Exactly. In fact, many borrowers with student debt actually have higher incomes because they pursued higher education. It’s really about debt relative to income. High-income borrowers with manageable debt often become homeowners at similar rates to those without debt.

Mark Fleming - Let’s dig into that a bit more. Over the past three decades, average student loan balances have risen sharply—from about $12,600 in 1992 to over $40,000 in 2022, even after adjusting for inflation.

Odeta Kushi - That’s a huge increase. But even with that, the share of income that young households dedicate to student loan repayments has actually declined. Between 2016 and 2022, for households headed by someone aged 25 to 34, the average payment-to-income ratio dropped from about 7% to 6%.

Mark Fleming - That might sound surprising at first, but here’s part of the explanation. Average inflation-adjusted income for those young households with student debt rose from $73,000 to $122,000 between 1992 and 2022—a jump of nearly 70%.

Odeta Kushi - Exactly. And much like mortgages, student loan payments depend on more than just the loan amount. The average repayment term almost doubled—from 7.5 years in 1992 to nearly 14 years in 2022. Stretching out the term reduces monthly payments, just like moving from a 15-year to a 30-year mortgage allows buyers to borrow more for the same monthly cost.

Mark Fleming - And during that time, interest rates on student loans declined too. The average annual rate fell by about two percentage points—from nearly 8% in 1992 to around 6% in 2022. Lower rates and longer repayment terms increased education “buying power,” while keeping monthly payment ratios lower. But, of course, it’s still important to ask whether the investment in education is worth the debt.

Odeta Kushi - Absolutely. And our research suggests that it is. Higher educational attainment leads to higher household income, which directly boosts house-buying power. For millennials, for example, the gap in buying power between those with a high school diploma and those with a bachelor's degree was about $250,000 in 2022, even after adjusting for inflation.

Mark Fleming - Right. That helps explain why the homeownership rate among millennials with a bachelor's degree was nearly 13 percentage points higher than for those with only a high school diploma in 2022.

Odeta Kushi - Exactly. So, to summarize, student loan debt tends to delay homeownership rather than prevent it outright.

Mark Fleming - Yep. That was an important detour, but let’s get back to those lifestyle factors. Next up in our 5 Ds is diapers.

Odeta Kushi - Starting a family is a big catalyst for homeownership. Parents want more space, stability, good schools, and community connections. But, with people starting families later, this driver has been delayed for many.

Mark Fleming -Then there’s divorce. When relationships end, you often get new households forming, which drives demand for both rentals and homes for purchase. In many markets, those splits create notable churn.

Odeta Kushi - That makes sense. Next is downsizing. As homeowners age, many want smaller homes, lower-maintenance properties, or to move closer to family. But many older homeowners are locked into ultra-low mortgage rates and are choosing to age in place, so some of that turnover is delayed. We talked about this more in our first episode if anyone wants to dive deeper into that topic.

Mark Fleming - And, finally, there’s death. Estate sales return homes to the market, and with older generations aging, this will increasingly influence supply dynamics in the years ahead.

Odeta Kushi - Right. So, the bottom line is that these 5 Ds represent the lifestyle forces that keep the housing market moving through all stages of life.

Mark Fleming - Exactly. So, what’s pulling people into the market right now?

Odeta Kushi - Well, let’s start with the obvious. Even in today’s challenging market, the 5 Ds are still driving demand. The need for space, proximity to family, and major life transitions push buyers and sellers to act, even with high rates.

Mark Fleming - Exactly. Despite elevated interest rates and still-high home prices, we’re still seeing 4.7 million annualized total home sales, including new and existing homes.

Odeta Kushi - That’s true. Although, based on today’s number of households, a “normal” level of activity would be closer to 6.8 million annualized sales. But your point stands—even in a market with historically low affordability and lots of uncertainty, people are still buying homes because life happens.

Mark Fleming - It really does.

Odeta Kushi - And speaking of affordability, another factor supporting sales is income growth. Over the past couple of years, wage growth has stayed pretty strong, helping some buyers manage higher home prices and mortgage rates. In our latest Real House Price Index, annual nominal house price growth was 2.2%, while income growth was 3.8%. So, income is growing faster than home prices right now, which helps improve affordability over time.

Mark Fleming - That’s a good point. And don’t forget the wealth effect from home equity. Homeowners today are sitting on a lot of equity built up during the pandemic-era price surge. They can use that equity for larger down payments on their next home, helping to offset those higher rates.

Odeta Kushi - Absolutely. And demographics remain a powerful driver. Millennials—and soon Gen Z—are still feeding demand. Many Millennials delayed homeownership for years, but that latent demand is still there. When life-stage needs arise—a new child, marriage, or even divorce—buyers enter the market, even if rates are high. It really shows that while affordability matters, many moves aren’t discretionary. People buy homes because they have to, not just when rates are ideal.

Mark Fleming - Exactly. But that begs the question—why does that demand remain latent instead of being fully realized?

Odeta Kushi - Well, let’s go back to the definition of latent demand: it’s demand that exists, but isn’t acted on because of barriers. First and foremost, cost. Home prices remain elevated, and higher mortgage rates mean monthly payments are much higher than they were just a few years ago.

Mark Fleming - Right. Though we’re seeing house price declines in some markets, and nationally the pace of price growth is slowing, which gives incomes a chance to catch up. So, there’s a bit of hope there.

Odeta Kushi - Definitely. But the second big barrier is availability. Even if buyers want to purchase, there aren’t enough homes on the market—especially entry-level homes. In places like the Northeast and Midwest, inventory is extremely tight. And, with the so-called lock-in effect, many homeowners don’t want to trade up or down if it means giving up a 3% mortgage rate for a 7% one.

Mark Fleming -Exactly. And there are two other cost-related barriers: student debt and credit constraints. While student debt alone might not block homeownership, borrowers with lower incomes or tighter credit can have a harder time qualifying for a mortgage, especially with higher rates.

Odeta Kushi - It’s also worth noting that the pandemic pulled forward some demand. Some of the caution in the market now reflects that surge. But the underlying desire for homeownership remains strong. It’s just being shaped by these economic headwinds.

Mark Fleming - That’s right. At the end of the day, homeownership decisions start with life decisions.

Odeta Kushi - Exactly. When those life events occur, it’s like saying, “This must be the place.”

Mark Fleming - Ah, a Talking Heads reference. I see what you did there.

Odeta Kushi - Of course! We have to keep it fun.

Mark Fleming - We actually mentioned that one in our Homeownership Month episode.

Odeta Kushi - We did. And you know, the song is about wanting to feel at home, which is pretty fitting. Alongside “We Built This City,” it’s one of our top housing-relevant ‘80s songs—though we might have overused that one for a while.

Mark Fleming - True. But we haven’t worn out Talking Heads yet.

Odeta Kushi - Not yet!

Mark Fleming - So, to really wrap up this class, the 5 Ds remain the core lifestyle forces creating that latent demand and desire for homeownership. But it’s affordability, inventory, and personal finances that determine when and whether that desire becomes reality.

Odeta Kushi - Exactly. In today’s market, life events—not market timing—are the primary drivers of demand. People aren’t buying because rates are low. They’re buying because life is happening. And that’s why understanding both the lifestyle side and the economic side of the equation is so important for reading the housing market today.

Mark Fleming -
Well said.

Odeta Kushi - Great way to wrap up this class. Thank you everyone for joining us for this episode of the REconomy Summer School. 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 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 - Thanks for listening, everyone.

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.