In this episode of The REconomy Podcast™, Chief Economist Mark Fleming and Deputy Chief Economist Odeta Kushi explore whether the 2026 spring home-buying season may turn on recent events and rising energy prices. They discuss the economic forces shaping housing demand, including labor market trends, mortgage rates, housing affordability and the persistent lock-in effect limiting supply. While affordability has improved modestly and inventory levels are rising, meaningful housing market recovery will likely remain gradual rather than dramatic.
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“Geopolitical developments can certainly create short-term volatility. Energy price spikes can briefly push yields and mortgage rates higher as investors hedge against the risk of near-term inflation. — Mark Fleming, Chief Economist
Odeta Kushi - Hello and welcome to episode 138 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 I’m joined by Mark Fleming, chief economist at First American. Mark, it’s spring, which in housing usually means more listings, more buyers and more households deciding it might be time for a change.
Mark Fleming - I have to say, I’m done with winter. It was snowing earlier, so let’s move on. It’s spring.
Spring tends to concentrate a lot of life decisions—moves before a new school year, relocations for jobs, growing families or downsizing. Housing follows a seasonal rhythm, and spring and summer are typically the busiest months.
Odeta Kushi - That’s right. After several years of subdued activity, there’s a natural question this spring: will the housing market finally regain some momentum?
Today, we’re going to unpack what the data actually suggests, what has improved, what hasn’t and what would need to happen for this spring to be better than last year. So, let’s start with the big picture. When you look at the housing market heading into spring, what stands out to you?
Mark Fleming - The most important thing that stands out to me is that the ingredients for improvement are there, but they need to work together. Housing activity depends on several factors: labor market conditions, affordability, inventory—especially new listings—and, of course, mortgage rates. But no single factor is decisive on its own.
Odeta Kushi - Right. As much attention as mortgage rates get when it comes to housing, this isn’t just a mortgage rate story—it’s an interaction story.
Let’s begin with the labor market, because housing ultimately rests on income and job stability. We’ve seen some mixed employment reports in recent months. In January, we saw strong job gains, and then in February we saw job losses, which raised some concerns.
Mark Fleming - The key is not to overreact to any single report. Mortgage rates and housing demand are influenced more by sustained labor market trends than by one month of jobs numbers.
Right now, the labor market is best described as cooling gradually, not collapsing. Hiring has slowed, but the unemployment rate remains historically low. Wage growth, while moderating, is still positive, even in real terms.
Odeta Kushi - Or in any econ data, right? There’s never really a lot of volatility. No revisions.
Mark Fleming - The labor market today is best described as cooling gradually, not collapsing. That one-month number may in fact get revised back up. Hiring has slowed, but the unemployment rate remains historically low. Wage growth, while moderating, is still positive, even in real terms.
Odeta Kushi - And that matters quite a bit for housing because stable employment and rising income support housing demand and reduce the risk of housing distress.
But I have to ask: how can we have historically low unemployment — about 4.4 percent — alongside a decline in monthly payrolls?
Mark Fleming - First of all, are you sure you don’t want to add another significant digit there? Only 4.4?
But that’s an excellent question. To break it down, we need two definitions.
First, the unemployment rate is the percentage of the labor force that is jobless, actively seeking work and currently available to start a job. It’s calculated as the number of unemployed people divided by the total labor force — both employed and unemployed.
Odeta Kushi - Don’t tempt me with a good time.
Mark Fleming - The second definition is the break-even job growth rate. That’s the number of jobs needed each month just to keep the unemployment rate steady. That break-even amount has declined due to slower labor supply growth. An aging population means more retirements, immigration levels are lower and smaller cohorts of young workers are entering the labor force. So, as fewer new workers enter the labor force, the economy needs to create fewer jobs to keep the unemployment rate steady. Research from the Dallas Fed shows that about half of the decline in the break-even rate is explained by slower population growth and the other half by slower labor force participation growth. Essentially, slower labor supply growth requires less labor demand growth to maintain equilibrium.
Odeta Kushi - Had to sneak equilibrium right in there. Not too hot, not too cold, but just right. Now we’re talking Goldilocks. But it’s not quite Goldilocks though, right? Because with such a low hiring rate in the labor market, if we start to see more layoffs, that could push the unemployment rate higher. That’s something we’re monitoring because housing performs best when households feel secure enough to make long-term financial decisions. But let’s switch gears from the broader labor market picture to talk about affordability.
Mark Fleming - Mm-hmm. Now we’re talking Goldilocks.
Odeta Kushi - Affordability is the constraint we’ve been living with for several years. Housing affordability has improved from its worst levels, which is a positive story heading into the spring. Mortgage rates have eased from their recent highs, incomes have risen and house price appreciation has slowed. In our recent blog post, titled Why the Spring Home-Buying Season Slump May Break in 2026, we show something we haven’t seen in more than three years, which is that house-buying power is back above the national median list price. House-buying power was about $417,000 compared with a median list price of around $396,000, roughly a 5 percent surplus. That doesn’t mean a boom, but it does mean more homes fit within buyers’ budgets heading into the spring. That analysis is available on our Econ Center at firstam.com/economics. But I’m curious whether you think that progress is meaningful.
Mark Fleming - It’s certainly a meaningful milestone. Surplus is better than deficit, but it has been a long and gradual process to get there. Affordability doesn’t just snap back all at once. What we’ve seen instead is incremental progress over the last couple of years. If income growth continues to outpace house price growth, affordability will improve even if mortgage rates remain elevated relative to the pre-pandemic era.
Odeta Kushi - Mm-hmm.
Mark Fleming -
A stable rate environment, whatever that rate level may be, combined with rising incomes and moderating price growth can move the affordability needle over time. That’s what we’ve seen begin to happen over the last year.
Odeta Kushi - Right. It’s that stability. We’ll take lower mortgage rates, but predictability also matters. Rates are still part of the housing story. Our analysis shows that at the current median existing home sales price of about $411,000, if rates fall from 7 percent, where they were in early 2025, to 6 percent, which is roughly where they are today, the share of renter households that can afford that median-priced home increases from about 36 percent to just over 40 percent. So rates do matter.
Mark Fleming - Exactly. Yes, they matter, but they’re only one of three parts. There are rates, income growth and price growth, which we’ve talked about through our real house price analysis. Those three together drive affordability. Mortgage rates have also been top of mind for potential buyers and sellers because for a brief moment in February the average 30-year, fixed mortgage rate slipped below 6 percent.
Odeta Kushi - That was a good one.
Mark Fleming - But, as of this recording, they are back above 6 percent. So, what is driving mortgage rates at this moment?
Odeta Kushi - That 5 percent on the left-hand side of the decimal really got everyone excited. It was nice to see, even if briefly. As we know, mortgage rates are influenced by movements in the 10-year Treasury yield, which reflects broader financial conditions, especially inflation expectations and the outlook for monetary policy. Recently we’ve seen some renewed volatility due to rising oil and energy prices. I’m curious, Mark, about the extent to which rising energy prices translate into sustained upward pressure on Treasury yields and mortgage rates.
Mark Fleming - It felt so good, but for such a brief moment.
Odeta Kushi - What do you think about how rising energy prices could affect Treasury yields and mortgage rates?
Mark Fleming - I feel like this was a bit of a setup since I’m the one answering the question that’s on everyone’s mind. Geopolitical developments can certainly create short-term volatility. Energy price spikes can briefly push yields and mortgage rates higher as investors hedge against the risk of near-term inflation.
Odeta Kushi - Well, it is on everybody’s mind. It’s all on you.
Mark Fleming - Historically those risk expectations tend to fade, unless energy prices remain elevated long enough to lift broader inflation expectations. In other words, persistence is what really matters.
Odeta Kushi - At this stage we don’t really know the depth or duration of this latest energy shock, so it’s too early to assume it fundamentally changes the rate or housing outlook. Let’s consider a slightly different scenario. Suppose unemployment rises modestly over the next six to twelve months while inflation risks remain tied to global supply disruptions. What does that mean for rates and affordability?
Mark Fleming - That’s quite the downturn scenario. A modest rise in unemployment alone is unlikely to materially change the mortgage rate outlook. Rates would move meaningfully lower only if labor market deterioration signaled a broader downturn, essentially a recession. That would likely prompt a flight to safety into bonds, which would push yields lower.
Odeta Kushi - Would you expect anything different from me?
Mark Fleming - Lower bond yields would then shift policy expectations toward rate cuts from the Federal Reserve. While that would lower mortgage rates, it would come from a recessionary environment. Personally, I’d rather not see mortgage rates fall that way.
Odeta Kushi - Right.
Mark Fleming - So, in the scenario you outlined, the more likely outcome is little to very modest change in mortgage rates this spring.
Odeta Kushi - That’s also the general consensus. Rates are expected to remain around where they are today. That means affordability improvements will likely continue gradually through income growth and slower price appreciation rather than a dramatic drop in borrowing costs. Let’s move from affordability to inventory. Even if demand improves, it cannot translate into sales without supply. You can’t buy what isn’t for sale, as we often say. The lock-in effect has kept many homeowners from listing their homes because millions of households have mortgage rates well below today’s market rates, and selling means giving that up. In a period of potential economic uncertainty, what conditions would meaningfully loosen that constraint?
Mark Fleming - Volatility or uncertainty can reinforce hesitation in the short term when people are considering one of the biggest purchases of their lives. But it doesn’t override broader demographic forces. There is still significant pent-up demand among homeowners who have delayed moving due to life events such as job changes, expanding families or downsizing. Living in a small house with two kids for five years eventually pushes people to act.
Odeta Kushi - So lifestyle choices drive housing decisions. What you’re saying is housing isn’t just about the financial side. It’s about financial and lifestyle considerations.
Mark Fleming - Exactly.
Odeta Kushi - It’s a ‘90s rapper, Mark.
Mark Fleming - I’m not going to stand for it. But speaking of time, those lifestyle pressures accumulate over time. As affordability improves and the gap between a homeowner’s current mortgage rate and prevailing rates narrows, even modestly, the lock-in disincentive becomes less binding.
Odeta Kushi - That was a good transition. The lock-in effect is powerful and will likely hold back market potential not just this year but beyond. But it is easing, which is the good news.
Mark Fleming - Exactly. If incomes rise, price growth moderates and mortgage rates stabilize, more homeowners may decide that the trade-off is manageable.
Odeta Kushi - We’re also starting the year with inventory above year-ago levels. That’s for-sale inventory.
Mark Fleming - Think of housing inventory like water in a bathtub. The level of water represents active inventory.
Odeta Kushi - How did we get to this point?
Mark Fleming - What really matters is the flow. The faucet represents new listings entering the market and the drain represents sales. If new listings increase, the water level may rise if buyers are cautious and homes sit a little longer. Or the level could stay the same if sales increase at the same pace as listings.
Odeta Kushi - There it is. Your annual bathtub reference.
Mark Fleming - I might be able to do it more often than that.
Odeta Kushi - Active inventory can increase for two reasons. Either more homeowners are listing their homes, which is the faucet turning on, or homes are taking longer to sell, which means the drain is slowing down. That makes one indicator especially important for the spring market: new listings.
New listings represent fresh supply and new opportunities for buyers. Markets where listings move closer to pre-pandemic norms have also shown healthier sales activity. Where listings remain constrained, sales remain capped even if buyer demand exists.
Active inventory levels remain above year-ago levels, but new listing activity is still below last year’s pace. On the demand side, pending sales activity is up from a year ago, which signals stronger demand. With more homes to choose from, improving affordability and significant pent-up demand, those factors bode well for the spring market. Would you characterize this spring as a turning point?
Mark Fleming - It does bode well for the spring, but I’m not sure we see dramatic turning points in the housing market. The market has been operating at a subdued pace for several years. Modest improvement will still be meaningful, but returning to pre-pandemic sales volumes will require sustained affordability gains, more consistent inventory growth and continued economic stability. That will take time.
Odeta Kushi - So better than last year is plausible, but a blockbuster market is unlikely for now.
Mark Fleming - Housing markets rarely shift overnight. They adjust gradually as fundamentals improve.
Odeta Kushi - Before we wrap up, let’s summarize what to watch this spring. First, focus on sustained labor market trends rather than a single monthly report. Stability supports housing demand. Second, remember that mortgage rates follow inflation expectations, Treasury yields and labor market dynamics. Short-term volatility only matters if it persists. Third, watch new listings closely because they signal whether supply is actually returning to the market.
Affordability improvements will likely remain gradual. Income growth and moderating price appreciation matter just as much as mortgage rates. Any final thoughts, Mark?
Mark Fleming - Slow and steady wins the race. As Aesop’s fable about the tortoise and the hare shows, that approach usually works best.
Odeta Kushi - I think that’s actually a very good analogy.
Mark Fleming - It’s not a sudden reset where mortgage rates drop back to 3 percent overnight.
Odeta Kushi - You managed to sneak that reference in just in time. On that note, thank you for joining us for this episode of The REconomy Podcast. If you have an economics question you’d like us to feature in a future episode, email us at economics@firstam.com. And if you can’t wait for the next episode, subscribe to the Econ Center at firstam.com/economics or connect with us on LinkedIn. Until next time.
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This transcript has been edited for clarity.