2025 Housing Market Trends with First American’s Mark Fleming

Welcome to the Top of Mind podcast from Altos Research. This is the show where we talk to real estate industry insiders and experts about the trends shaping the market today. Enjoy the show. Mike Simonson here. Thanks for joining me today. Welcome to the Top of Mind podcast. If you follow along with Altos Research, you're familiar with our weekly real estate market data video series. With the Top of Mind podcast, we like to add context to the discussion about what's happening in the market from leaders in the industry. Each week, of course, Altos tracks every home for sale in the country, all the pricing, all the supply and demand, all the changes in that data, and we make the insights available to you before you see it in the traditional channels. People really need to know what's happening in the housing market right now. So if you need to understand the market or communicate about this market to others, go to altosresearch.com, book a free consult with our team. Let's review your local market and teach you about how to use market data in your business. So speaking of data, I've got a great guest today, Mark Fleming. Mark is the chief economist for First American Financial. In this role, he leads the economics team responsible for analysis, commentary, forecasting trends in the real estate and mortgage markets. In his research, he's primarily focused on real estate and urban economics, applied econometrics, mortgage risk. He is an influential voice in the housing industry. So if you read like the Wall Street Journal, the New York Times, or Housing Wire, or if you watch broadcast news, you probably heard from Mark. Mark and I have known each other for many years, and he's really one of the top experts on what's happening in the housing economy right now. And so I am super thrilled to have him with us today. So Mark, welcome. Hey, Mike. Good to see you. It's been a little while. It has been a while, but this is your second appearance on the Top of Mind podcast. And I was looking back, it was more than two years ago. So it was like the market had not yet changed. Like we were in a very different universe from where we were two years ago, the last time we talked. Before we dive into like where the market is today and stuff, you've been on the podcast before, so we don't need to redo the full Mark history. But give us like a quick background for listeners to know who you are and your role in the industry. Yeah. So in your introduction, the long formal bio, that's the details on me. I've now been working in real estate and real estate finance for over two decades. And first in the mortgage world, now for First American, which is a large title insurer and settlement service provider. And all along, basically just studying real estate markets and mortgage finance. And it's been quite a ride. I think, you know, going through you and I, I think, met each other back in the global financial crisis. That was a lot of fun. Yes. And then like a pretty darn good decade of recovery. And obviously now sort of dealing with, you know, fast rising interest rate environment and the consequences of that. So it's been interesting. I think we all know you, I and I'm sure all of our listeners that the business we work in is cyclical and riding that cyclical wave is sometimes challenging, but also sort of intellectually stimulating and a lot of fun. Yes. And it is particularly wild right now. We had, you know, we had this this world of like, you know, obviously mega growth we've had now it's over two years of really hit the brakes on homebuyer demand. And and so maybe maybe let's start with this. Why don't you give me your take on 2024 where we are now? Like what what what what's your what's your conclusion on the year? So you're not going to tell me what forecasts I made two years ago and how par for the course for how long I was going to ask you for your 2025 forecast. OK, so we won't tell the listeners how badly I maybe got it wrong in 2022. For all I know, undermine my credibility for future forecasts. But yes, this is, you know, actually, I've been using a lot of TV references. End of the long, cold winter. If people might get the Game of Thrones reference. We've been through two years now of one of the fastest in both speed and magnitude rate increasing environments in terms of monetary tightening on the part of the Fed, only on par with the 1971, 80, 81 tightening that was that was done. And so if it felt bad, it was because it's bad. And as we said, it's a cyclical market driven by interest rates. And when you increase interest rates that quickly over these last couple of years, we basically adjust very, very quickly. And that has mainly shown up in significant reductions in the amount of home sales. I'm sure we'll unpack that over the next 30 to 45 minutes here. But that has to do with both the demand and the supply side. Right. Lower home sales because people aren't willing to list their homes for sale and lower home sales because people are having a harder time being able to afford them or some combination of both. Where it has not had any impact is on prices. Some markets are down from peak, but we're talking about markets like Austin, which during the pandemic increased by something like 70 percent and is now down eight. So hardly giving up what it had gained in any meaningful way. And that's the biggest correction that we see out there in the market. So prices have continued to rise in most markets and have remained unscathed. Yeah. Let's talk about that for a second. So home sales are way down. Home prices are not. I remember, you know, we joke about how hard it was to forecast two years ago. And for me, like I at the time, I was not forecasting big home price declines. You could see reasons, you know, that that we weren't going to go into a bubble burst. And I feel like I got that pretty close. I did not spend enough time saying what is going to happen is that home sales are going to tank. I did not. I underemphasize that. And I probably didn't realize that that really that's where it was going to play out. So give me your take on why over the last two and a half years, home sales tanked, but home prices did not. Yeah, we actually did see this coming, both parts of this one. And that's because the fundamentals of the housing market are unique in the sense that most of the homes that are brought to market for sale are brought to market by existing homeowners and they are making the contemporaneous decision to also buy. And so someone choosing not to sell because they've got a really low great rate compared to the prevailing rate means they're also not going to be a buyer. And so that reduces inventory and reduces purchase activity. Add to that the first time home buyer who is significantly impacted by affordability constraints as prices continue to rise and the monthly payment on the mortgage for the same loan amount also goes up. They also withdraw from the market. So we were fully expecting sort of fewer transactions in the pipe. And honestly, because of the imbalance that actually you pointed out, I think, in a recent podcast about the fact that this sort of decline in inventory is not a new pandemic thing. It's been going on for the last five or six years ever so slowly. It was accelerated by the pandemic. But the decline in the availability of homes for sale has been driven by the demographics of aging, essentially, over the last couple of years. So we sort of have this sense that this will be exacerbated. There just won't be anything to buy. Everyone will sit it out and prices because those people who are out there trying to buy what what little is out there still end up bidding prices up. Yeah. And in fact, we noticed in in the last September, the six weeks or so, we had nicely dropping mortgage rates. It was really surprised me that we actually saw prices tick up in that very quickly when with even just a little marginal demand and improvement on in the last few weeks. But this is actually this is actually what I fear, right? When now we've cut rates, it helps on the demand side. So that first time home buyer has a little bit more buying power, but it's not enough to move the seller to list. And so you basically are lowering rates, improving affordability, increasing demand relative to unchanged supply, unchanged supply. Sorry. And that could actually put more upward pressure on prices and have them reaccelerate. Yeah, well, we'll get into that into some of those scenarios that like how likely is that in the next year or so? But OK, so that's our view of the of twenty twenty four. You publish a housing market recession model like in paper. Tell us about that, that recession model and what we should like, what we should know. What is it telling us? Those kind of things. Yeah. So often our research comes from being asked the same question over and over again and deciding that we really need to clarify the answer once and for all. Right. And so a lot of this came from, well, you know, what what defines an economic recession? Like what is the housing market part of an economic recession? It's like, OK, well, first of all, just because GDP goes down or just because the unemployment rate goes up, that's not technically going to be called a recession. There's this NBER, they date recessions, they look at a variety of different statistics across the economy, including those ones I mentioned, but others in terms of expenditures and consumption and savings and a variety of different things. And of course, the economy writ large doesn't necessarily tell us about our industry. As we know, we have not yet been classified as being in an economic recession. But I think you and I can agree that the housing market certainly has. And so how do we create like a measure that would be housing market specific? So we sort of took all of the things that are used economically and found like the housing corollaries. So we look at residential wage growth, residential construction worker wage growth. We look at the number of workers in construction, housing permits, consumption on housing and utilities, you know, how many how much furniture is being bought, things like that. So sort of the housing equivalency of the broader economic concepts bundle them all up into a housing recession indicator. Newsflash, we were in a recession when the Fed started raising rates. Now, we technically came out of it because sort of things stopped getting worse earlier this year, if you recall. We sort of stabilized at a little bit below four million home sales. House prices continue to slow down. We've still been building, by the way, throughout for other longer term reasons. And so we sort of came out of technical recession in the housing market. But one other thing that's really interesting is you remember the adage that the housing market often leads us into economic recession? When we look at it, practically every time we had an economic recession, we found that our sort of measure of the housing market recession indicator was preceding. So sort of that conventional wisdom is proven true, if you will, by this. Right now, we've had a housing recession, so maybe that means there'll be an economic one, but it's not necessarily a foregone conclusion because there are times when we've had housing recessions and not economic recessions. And so that's interesting. So when you look at the last couple of years, obviously transaction volume was down by a third or more, right, really significant. But things like permits were not down. Right. Housing construction in general has continued to do well. Prices are something that we also look at and they're not sort of writ large down. Right. No foreclosures, no serious delinquency in the mortgage market. Consumption spending actually on housing services and utilities has held up quite well because while we may not be moving homes, we're still reinvesting in our homes through DIY projects, buying new furniture. I mean, certainly during the pandemic, you know, where I sit in this office, I sit and talk to you from in my home. I had to turn it into an office when the pandemic hit. So I was shopping on crate and barrel and those other sorts of places, much like everybody else. And so not all indicators have to be bad for a housing recession. So there are segments and particularly the construction side of things has done very well. And that's because, I mean, we've talked about this, you know, we just can't build enough houses. We haven't been building enough houses and that's not going to change. OK, so so so transaction volume. But what else was on the downside that pulled that indicator down? It was a slowdown in appreciation by primarily transaction volume and at points well, mortgage rates and affordability. That was the other big one. Mortgage rates and affordability. Yeah. Yeah. So the big levers were moving big. OK. Yeah. And so then when we look at 2025, do you do you feel like the the housing market is on a rebound? Yeah. So back to my long, cold winter analogy. So, you know, the winter ends and presumably spring arrives, I guess, if we follow this analogy. I always get antsy for spring. I live in the northeast in Washington, D.C. and come March, I'm really sick and tired of the cold weather. And it starts to get warmer, but it's still pretty cold outside. And, you know, if you if you go see where I'm going with this analogy, yeah, it's not going to get worse, but it's not like we're going to rebound instantly at the beginning of next year to six million home sales. We are years away from ever getting back to that mark. So it will get warmer from a very cold start over time. Yeah. Got it. And do you have since we're talking about it, do you have numbers about like what you're forecasting for home sales? Didn't you see how well I just did that? I gave you a forecast without a single number and you're still pressing me for it over. So if we assume that there's roughly four million home sales in 2024. Yep. Does that feel like, you know, a five percent gain, a 10 percent gain in 2025 for you? Yeah. I mean, if we if we were looking at numbers, we'd put ourselves somewhere. So four and a quarter, four and a quarter, something like that. And frankly, that's that's roughly where I am as well as looking at the 2025. And we're about to actually publish a big forecasting paper at HousingWire with all the stuff, all the pieces in there for 2025. But but and and so that makes a lot of sense to me. There are some folks like I think it was maybe the NBA or maybe NAR recent like saying like four point nine million home sales. Yeah. Do you see scenarios where that could happen? OK, so most forecasts are really driven by what's your forecast for rates. So, Mike, to get to your four point two five for home sales, what were you thinking the rate will be at the end of 2025? So I I said this like I say this frequently, I don't forecast mortgage rates. I try not to either. I'm not anybody can exactly long on mortgage rates for 30 years. But but if I assume that rates stay in the sixes in the fives a little bit in that rate, but then you get you get to four point two five if essentially we're talking about mortgage rates in the high fives at the end of next year, which would be about half a percent, a little more than half a percent from where we are now. Right. Then, you know, our models suggest that that puts you at about four and a quarter in terms of sales. Now, the differences in ultimate forecasts has to do a lot with how bullish you are about mortgage rates. If you think a mortgage rate will be at five percent by the end of next year. Yeah, you're talking about some major Fed rate cuts, a pretty quick monetary easing path for that to happen. Then then, yeah, you're talking about above four and a half approaching five million home sales a year because it is it is sensitive to two rates. And we just don't know how people respond because we've never seen in the data the rate lock in effect to the magnitude that we see today. So it's really unclear how sensitive or insensitive existing homeowners are to that rate lock in effect. And I would be curious to say, even if we do, even if rates do plummet, let's say we get lousy economic news and we get Fed cuts and we get all of those things. I would be curious to see how fast consumers respond. Like, like, do they do they rather, you know, like it is is that five million is that twenty twenty six numbers like is that when we get that momentum, I just take that long to build. It's just great. It doesn't happen in isolation, right? Because let's just say that all of a sudden we're looking at a 5 percent mortgage rate or let's go even more aggressively here. Let's say we go down to four and a half percent mortgage rate by the end of next year. Well, in isolation, if the Fed was just doing that out of the kindness of its heart to the housing market, then sure, maybe I would see a big jump in home sales. But if they're at four and a half by the end of this year, bad things have happened. Right. Like a pretty meaningful recession for them to accelerate the rate path by that much. And so double edged sword. Yeah, it's a lot cheaper and I'm not as much rate locked in, but I might not have a job. So, you know, it doesn't necessarily translate in isolation. There are reasons why these things are moving at the way at the paces that they do. And most forecasts are essentially assuming no recession, modest, sensible loosening of monetary policy and a relatively slow glide path to at the end of the day, a mortgage rate that we believe should in the long run be around five or a little bit more than five. OK, so in the long or you believe it in the long run, mortgage rates should be around five. Tell me about that. Well, that gets into this concept of our star and the natural rate of interest, if you've ever heard the Fed talk about it. Right. And the in their projections, they essentially say the nominal Fed funds rate should be about two point nine percent. That's the current estimate. Nominally, that includes assumption of two percent inflation. So essentially they're saying the long run real rate of interest is about one percent, two plus one, two point nine or three. You add on to that term premium and and spread on the 10 year Treasury bond. And that basically, you know, that goes from three up to a Treasury bond of maybe a little over a little under four at about 200 basis points of spread between the bond and the mortgage. And voila, very, very fancy math. Yes. A five percent mortgage rate. You're like a napkin math. Exactly. And so, OK. And so that as the economy moves into its post pandemic, it settles into the next phase of the next decade. That seems like a natural level that we might see in mortgage rates. Five percent. Exactly. But, you know, I say this in jest and for your listeners who are actually watching with the big grin on my face, like a Cheshire cat, like, are we ever really in equilibrium? Right. Right. So we miss the high side. We miss to the low side. I mean, like that is the very sort of in economics is called comparative statics, which suggests a two point nine percent Fed funds and a five mortgage. But it may not be necessarily the case or rarely is it the case that we actually end up maintaining equilibrium. Yeah. When was the last time we had a normal housing market, Mike? Right. Right. Before you and I ever met. Yeah. Right. Twenty five, even twenty five years ago, it wasn't normal. That was I go back literally probably the late 90s was about the last time that seemed like, you know, relative balance in supply and demand and mortgage rates and prices. That was over a quarter century. Yeah. Yeah. Zowie. OK, so. So then let's switch gears. I. So one of the things I'm very interested in, you know, is the affordability challenge. And I've had your colleague Odette Akushi on here on the podcast, and we talked about her work in affordability. And so we're we're in a like in some ways you could call it an affordability crisis in the country. What? Tell me about your perspective on that. Yeah. So pretty much every metric or measure that is used to understand affordability is sort of flashing red. To your point, yes, housing is very unaffordable, but we take it one step further. So the common ones that I'm sure your listeners are familiar with are the ones where you sort of compare median income to median house price, things like that. And OK, that's a very good sort of high level sort of proxy measure. But two things strike me there. One is it's not just about income. It's about income and the prevailing mortgage rate. So if your income stays the same and the mortgage rate goes down, your house buying power goes up. So if anything, we would be wanting to compare median house buying power, essentially how much could you afford to borrow and then figure out how that relates to the median house price. So that would be that's one step of improvement is buying power rather than straight income. I like to make the joke is like, you know, that analysis would make sense for buying milk. It doesn't make sense for buying homes because we buy homes with mortgages and leverage. Right. Right. The next one is there's this concept in economics called filtering, which is if you're at the higher end of the income distribution and the high priced home becomes too expensive for you, you filter down and you buy like the slightly less expensive home. Well, that creates competition between you and the person who was at that point and they get pushed down. So everybody keeps getting sort of pushed down. Now that I said I'm laughing, we economists come up with these sort of filtering sounds a lot nicer than pushing people down because at some point you get pushed off the proverbial ladder right at the bottom. So we like to look at how much can you afford relative to your distribution, because we want to make sure that affordability is never an issue for high income people. You can always buy something less expensive. I'm sorry you can't afford the five million dollar beach house, but you can still afford the one a few blocks in. We're not from a policy perspective. I feel like we don't we shouldn't be worried about that. We should be worried about the people at the bottom of the income distribution. So we look at this thing called we call it the housing genie and this borrows from the genie coefficients, which are wealth distribution measures. And I'm gonna have to draw a picture in you and your listeners mind's eye. But the X axis is percentage of the income distribution for renters. So if you're the top of the rental income distribution at 100 percent, let's say Jeff Bezos in Seattle happens to be a renter. OK, he's 100 percent of the rental income distribution all the way to the right. How much how many homes for sale can he afford? It's not a trick question. All of them. Right. Probably. And so he can afford Y axis is the share is the share of home. So he's all the way top right. But a person all the way at the bottom of the income distribution, how much can they afford? And in a worst case scenario, none of them. Right. And so what we do is we trace out these curves. That sort of look at how much can you afford for your relative position in the income distribution. And there the equal market will be one where you can afford your fair share. In other words, the 100th percentile renter, all of them, the 50th percentile renter, half of them, the 10th percentile renter, 10 percent of them, for example. Any market where you can afford more is sort of considered more affordable. A perfectly affordable market is one where everyone in the rental distribution can afford every home. Right. So the line goes straight up and then over. That doesn't exist anywhere. What does exist today, though, is markets like Los Angeles. We just updated the analysis in preparation for this conversation with you. And it takes something like to be at the 80th percentile of the rental income distribution in L.A. to be able to afford 10 percent of the homes, which I would argue are often barely livable homes. Right. And so the bottom 10 percent of the homes in L.A. right are 100 years old and need a lot of work. Need a lot of work. Yeah. And so you think about that. That's the vast majority of renters can barely afford to buy anything in L.A. by our reckoning. It is the most unaffordable market in the U.S. today. Now, there are many more that are also unaffordable, not to that extent, but very few. You have to go to the Midwest to find markets where the 30th or 40th percentile renter can sort of afford 30 or 40 or 50 percent of the homes. In other words, there is something out there that you can afford to buy generally only happens in the Midwestern markets around Ohio and Illinois and places like that. So so affordability is so so looking at so I like this as a as a view. Sometimes we just say, hey, median income in L.A. and median home price in L.A. and and they're not affordable. But but what you're looking at is the median income of people who are renters, which that's the other thing than the overall median income. There's a big difference. The typical income of owners is typically twice that of renters. OK, so, yeah, it makes it even even trickier. Yeah. When you take that, essentially, if you use overall income, you're artificially inflating the the the denominator of that calculator, the numerator, more affordable and it looks better than it really is. Exactly. OK, so I have a couple of questions on that. That's really neat. I have a couple of questions. One is so you mentioned, obviously, the Midwest markets are more affordable and your median price is lower. In many cases, you know, a lot lower than, say, L.A. but an income is lower, too, but not maybe that much lower. And and so over the last two years, though, as you know, you started off mentioning at the top of the the hour, you mentioned that like Austin home prices dipped. Yeah, but they're most of the country they have not. And in fact, many of the Midwest markets home price inventory is super tight still and home prices are up. So are those is are those Midwest markets getting less affordable? That is it faster than L.A. is getting less affordable? Like, is it equalizing at all? Yeah. So affordability at a point in time is a static concept and it's changing over time. And you're absolutely right. The because of the shortages in those markets and the fact that they are remaining affordable is and that means people are able to buy and transactions are happening. Then it essentially whittles it away over time. So they are becoming less affordable more quickly, but sort of awful, very low, a good starting point. A good starting point. But but in some ways, like the country is the affordability in the affordability in the country is evening a little bit. Well, yeah, and we actually see that through the migration statistics, particularly during the pandemic, where there was fair amounts of out migration from the very expensive and unaffordable cities on the coast to other markets, whether it's in the northeast where I am, people moving down south to the Carolinas and Georgia and Florida or in California, moving inland to Arizona, Phoenix and Texas and places like that. And so, yeah, the one of the reasons why using Austin again as the example, house prices grew so quickly in Austin was even though they're pretty good at building there, just could not keep up with the influx of demand from wealthier individuals from other more expensive markets. It's not only it's not just the moving to a cheaper market. It's bringing all that equity with you. That's sort of that arbitraging with your equity that you bring with you. And they just outcompete the locals for those homes. Yeah. And and it's and it's a couple of things that happen there. One is that it's for that's a reason that seems to me that markets, some markets can stay unaffordable, maybe indefinitely. Do you agree with that? Or is is affordability by itself a predictor that home prices may need to fall? It reminds me I should update an analysis I did. This is probably more than 10 years ago where we basically looked at the share of income that went to housing consumption. And we found these fascinating patterns. People typically spend more of their income on housing in sunny, nice weather climates than they do in cold and miserable climates. I mean, I do. Right. Makes absolute sense. Yeah. You know, I will forgo the slightly bigger house. I will forego eating out that extra time per month so that I can live near the beach in California. Right. Versus, say, if anybody out there is listening, I'm sorry to pick on you, Detroit, which is actually doing a great one. Three, a 360, right there. They're totally turning around. That's a great example of how you go from being a really troubled housing market to one that's vastly improving now. But as a general statement, yeah, we don't necessarily equally spend or we make the choice to consume more, to use income, to consume housing in different ways, depending upon where we are. It's basically to get access. You pay more because you to get access to that nice weather. I even though I spent all this time with you, Mike, I have still not learned that the weather is nicer pretty much anywhere else than Washington, D.C., except right now. It's really good right now. Yeah, exactly. So I want to follow up on the Detroit one. But but let me let's do one more on affordability, which is so what is your outlook for the first time homebuyer in twenty twenty five affordability wise? Are they screwed? To to bar your term, ever so slightly less screwed. OK. Yeah. House price appreciation has slowed down to a much more reasonable. It's much closer to the long run sort of rates of appreciation. And that's good because, you know, your income has to try and keep up, you know, holding rates fixed. Your income has to growth has to try and keep up with house price appreciation. Otherwise you're falling behind. Right. And we're now at somewhere between four and six percent annualized house price appreciation nationally, at least depending upon what index you look at and wage growth is somewhere in the three percent range. It's actually slightly elevated, which is good. So that gap is closer. And we do expect, as we talked about earlier, some relief in terms of lower mortgage rates. And so, you know, you're growing income, lower mortgage rates. That's going to improve your buying power. Now, you have to compare that relative to house price appreciation. And as long as that stays in check, you will make some modest inroads on affordability as a first timer. But it's pretty bad. And so it's you know, it's not may not necessarily be a game changer, except in some certain markets for most people. So I don't expect to see this sort of rush of people who are flush with house buying power, like I can afford to buy everything now. Like that's that's just not going to happen. And as we were talking about earlier, there is the risk that if what little demand does get stimulated, those first time home buyers, more of them appearing in the market wanting to buy and sellers still don't want to sell, that could actually reaccelerate house prices. And that essentially whittles away or washes away any gain that you made in buying power and affordability from the income and interest rate side. Yeah. And you and you mentioned four to six percent home price appreciation for for this year. That's right in the range that we see it happening. And and I'm not sure we got to this, but but 2025, like four to four to six percent is kind of normal. That's normal. Yeah. Sort of baseline assumption. Do you see that differing in 2025? Yeah. So, you know, the you know, that the classic economist question, like, are there upside or downside risks to your forecast? So I got to stick with the baseline forecast of, yeah, nominally, house price appreciation will stay in that historic average of four to six percent. But I do believe there is this upside risk to it being faster because of this dynamic we just talked about, like people not bringing their homes to market sufficient to that increased demand and essentially getting sort of more back to where we were in the pandemic, not as extreme as that, but where people were sort of tripping over themselves to buy what was for sale. Yeah. And that pushes prices up. OK, so that's I appreciate that. Like stepping up and saying that there's upside risk in that view that you think there are more likely scenarios that would that would drive demand, like if if mortgage rates dip and demand does pick up, like it happens, the timing happens right, for example, in the first quarter so that we stimulate demand, then then you could see a an upward upside risk to your to the. You're it's a little it's a little backwards. So upside risk, meaning upside to the number being bigger than I forecast. Yeah, right. Right. Prices move higher. Right. Yeah. But but the flip side to that is that I don't see very many downside risks. In other words, house price appreciation slowing further or heaven forbid actually declining. Right. I see my list because yeah, because even what's the what is the the big sort of risk out there is probably economic risk that we actually do not have a soft landing and we do have a recession. But when we have recessions, rates are cut. So we get that we will get a benefit of increased affordability by having a faster decline in mortgage rates than expected when that one downside risk happens. And if that, of course, happens, that means affordability improves. There's more demand, possibly a little bit more supply. But I don't expect it to sort of push prices down. In fact, historically, when there are economic recessions, prices don't go down. The only time in recent history that it happened was the global financial crisis. Now, that was the last time. But the unique circumstances of the foreclosure contagion and financial innovation of mortgage products and things like that, none of that is here in the current environment. OK, right. And what about a scenario where we know that inventory is climbing? Unsold inventory is building across the country. And what about a scenario where, like, there are more sellers that, you know, are like, I need to unload these before I whatever, get out before like, you know, they get out before a deflationary cycle or what do you like? Are there any of those risks that we should be paying attention to for the next year that like might drive home prices down bigger? Yeah. So, you know, never say never. But I'm about to say never. No, I said I'm sure there are markets or pockets of markets where there is significant risk of that. But, you know, you made the comment like, well, I need to get out now. OK, so if we're talking about a stock makes total sense, I can sell the stock. I can then, in my case, walk back downstairs into my kitchen. I still have a roof over my head, like selling a stock and getting out is, you know, a financial asset decision that I've made in my portfolio. Sell your home. Where are you going to live? So that decision about getting out like, no, no, you don't get out of the provisioning of shelter for yourself. You have to get it from somewhere. If you're going to sell your home, you're going to buy another one. You're going to rent like. And of course, it might be great. I could sell now because the risk of the prices is going down. But then I have to buy now in the market at the same price level. Or if I well, I'd be able to buy the home less expensively if I wait. But that would mean I'd sell my home less expensively. Like you see my my conundrum. Yeah, we play both sides of the market. We are both supplier and demander. And so I think you kind of get into these situations where it's like you don't treat it financially like you would a stock. Yeah, yeah, yeah, for sure. Maybe there's scenarios where like there's investors that want to second homes and that's like that. And is there any risk of that? Like, yes, I mean, they're if it's a second home or you're an investor, then absolutely. If you're the bigger investors, sort of the the institutional investors, if you will. I mean, they're certainly making sort of the more financial decisions because that's not the house they live in, to your point. Right. But even in that scenario, you think about it like we're writ large, short of supply relative to demand. We haven't built enough houses in the last decade. So if people if more inventory is brought to market, I think that's that's a stabilizing force. And whether it's an investor putting ten houses in on the market or an individual selling their one house and buying another, I think we are so low in terms of what would be considered normal inventory. And, you know, you've been reporting that it's improving. It's still I look at the cumulative curves that you show. It's like, well, it's not like the it's not like the curves. It's better than last year. So, yeah, but, you know, the pandemic curves are like in a totally different section of the chart than the normal ones. Right. Right. We've still got a long way to go to get any kind of normalization of what would be considered a reasonable amount of inventory for sale. Yeah. OK, I buy that. And I am always looking, though, to see if there's like, you know, are there things that I haven't been paying attention to for those those scenarios? OK, you know what I think drives it is will be pockets. There is historical research, unfortunately, that clearly shows that natural disasters can drive significant changes in the local markets that they're impacted by. And, you know, you don't meet, you know, everyone can figure out like what's going to happen in places like Asheville or some of the towns in the mountains near Asheville, the cost of insurance and rebuilding in some of the Florida markets. So and there's anecdotal evidence, at least, that people who bought homes in some of these, say, Florida markets from out of state are like, maybe this wasn't such a great idea. Now you want to sell them. And as what happened in the global financial crisis, when too many people want to sell at once, and this would only likely happen in like concentrated micro markets. But if everyone in some of the neighborhoods around Tampa all decide that this is not a good place to live, but everyone also who would be the buyer is also deciding that this is not a good place to live. That's where you have the challenges. We could see it. And I think we could see some this year. We could see inventory impact in like Sarasota from Ian, Hurricane Ian, a year ago. You can see that impact and like and Fort Myers and like further south in Florida this year. It would be interesting because you have the detailed data to do this. Yeah. Go and if we could track specific like natural disaster impacted areas and try and see if there's a correlation to sales and prices and how long that lag is. Yeah. Right. Yeah. And I think I think that like there's probably some risk in those, especially the western Florida markets next year. Like they're not selling today. But like, you know, after you, you know, you clean up the the you know, the the whatever you like, get a little ahead of the curve. And the next year you start thinking about, you're like, OK, I'm done with it. Like maybe next year is when we see the inventory build, especially when the home insurer says, well, your new premium is. Yeah. And which and it's already been and that's already driving. OK, let's shift gears. So I'm pretty sure we're going to this is going to come out before the election. This pocket is going to come up. No, we're not going there. Are we going to the election? So I'm interested in, you know, what what you think the elections impact is happening now on the on the market, but also let's talk policy. So in preparation for this question from many over the last couple of months, we sort of went back and looked. Is there any discernible change in the path of house prices and the path of home sales in the sort of 60 or 90 days after an election? And there's none. No, no statistical least significant things that happen. So, you know, the housing market doesn't react on November six to the outcome of November 5th, right? Right. Never has. Right. There are, I think, where you see the impact of politics on the housing market is ultimately in the longer run economic policy decisions that an administration makes that ultimately influences 10 year treasury bond yields and the mortgage rate. So when it comes to the policies, the question I ask is, what will the the the the policies do to sort of longer run trends in basically the 10 year treasury yield? Right. So are tariffs going to impact the 10 year yield over time? Possibly. Are you know, is fiscal spending, which, you know, doesn't matter what party we're talking about. There's just a lot of spending sort of being proposed. Right. How this is a question, I have no idea what the when answer is to, but how far can we go in terms of our debt before someone says, I'm not willing to buy that 10 year bond? I mean, you look back at places like Greece and Italy and Argentina, you know, debt to GDP ratios above 100 percent tend to cause in investors to not be willing to invest in in government debt. And that raises the yields significantly. But we're different. Right. We're the reserve currency and we're a much bigger economy. And so it really calls into question. I don't think anybody has a good answer for how much is too much. Right. But to me, it's not the immediate aftermath of an election. It's the policies that are ultimately successfully enacted to. The question is, you can propose a lot of ideas that may or may not actually come to fruition, and it's only the ones that come to fruition that ultimately have an impact. But if there is a connection, it's it's our spending and our, you know, taxing and tariffs. And it's those kinds of things that would ultimately influence that magical 10 year treasury, because that's the thing that ultimately is what pushes mortgage rates around. And fascinatingly, here in October, the 10 year has been pushing higher. We've had some strong economic news and yeah, and the economy continues to be super resilient. And so the 10 year has been pushing higher in October. It's been really fascinating. Even after the Fed cut rates by 50 basis points, the next couple of days, the 10 year went up, 10 year went up. Right. So, yeah. And so do you think like, like when we look at the broader economy, do you do you spend some time thinking about the broader macro economy and do you have a take on on that? So, you know, like it like we I think you you said you're assuming no recession, but do you have like more or like other other framework for us to pay attention to? Yeah, I mean, to to study the housing market means you have to sort of have some awareness and understanding of the broader economy, because obviously it influences it. The mechanism is through the transfer of rates. Right. And at the moment, actually, it seems like the economy is doing extremely well. In fact, almost another TV analogy, stranger things, upside down world, like it's doing too good or too well. Right. We've had better than expected jobs report, better than expected wage growth, the newest forecast for GDP growth of something like three percent, which is well above long run trend for the US economy. In other words, it seems like our economy is still running pretty hot. And from the Fed's perspective, that's like, well, wait a second, like I'm trying to cool the darn thing down to keep inflation under control or get inflation sort of that last percentage point of inflation away. And so now as of September, they said, here's 50 basis points. We'll do another two cuts, probably another 50 basis points by the end of the year, most likely as a November cut and a December cut. Now everyone's saying, well, maybe we'd only do one cut because the economy is doing too well for itself. Yeah. So it's sort of that kind of like weird world we live in where good news is bad news at the moment. Right. Yeah. And yeah, bad news for housing. And it's like as a result, the 10 year jump this week and the, you know, the the mortgage jump this week, mortgage rates jump this week. And we can see that impact pretty quickly in purchase numbers. You know, the homes going into kind of watching inventory tick up all of those areas. OK, are there anything are there any like flags or like signals that you're watching for macro that we should like keep our eye on maybe over the next few months? Yeah. And it largely gets to the labor market. I think, remember, the Federal Reserve has a dual mandate. It's supposed to maintain stable prices, and it's been working really hard to sort of recover that aspect of the mandate, right? Get price of inflation back down to its target of two. And then the other mandate is stable or full employment. And I think, you know, that's the as long as the labor market performs as well as it's been performing and maintains its strength, even though it is weaker, per se, than it was a few months ago. It's that relative. You know, the starting point was so good that it's still good. It's just not as good as it was. It's if the labor market maintains its strength, then the Fed has the luxury of being able to either maintain rates or cut rates or sort of do what it wants with rates without any consequence to that sort of other mandate. If there's all of a sudden material weakness appearing in the labor market, then that changes the calculus of the Fed. And they have to really consider cutting rates faster to protect that other mandate. If that were to happen, there doesn't seem to be any indication of that. I mean, credit card delinquencies are up, but again, off a super low rate. Auto loan delinquencies are up, but again, off an extremely low rate. Consumers seem to be finding money to spend, although we're beginning to wonder where it's coming from because it's no longer coming from savings. So I would say watch the consumer. OK. And their behavior, the four signs of distress or signs of slowing their pace of consumption, because that will probably probably be the best leading indicator of potential overall economic distress. Got it. As as a leading indicator to the next part of the cycle. OK, that's that's good insight. You know, when you you obviously have your at First American Financial, you see a lot of transactions, you know, you do the closing on on home sales. Are there are there data in there that you have access to or insight like that you get that nobody else gets that that you get to see for the world? Yeah. So, I mean, we look at our title orders and we can look at them geographically to understand where where the business is flowing to us. But essentially, it's highly correlated to surprise, surprise all your data. Right. I mean, people list homes and people buy homes. And somewhere in that process, a mortgage loan application occurs and a title order is placed. And so it's I don't know that it is some sort of unique special sauce that allows me to have a more crystal, crystal ball than Mike Simonson. I think the timing is good for us because we do see it certainly earlier than recordation in the public records and and things like that. But essentially, our timing is somewhere in sort of that listing process. So we're seeing the information roughly in line with you and as you do it. And I do benchmark my stuff against you. And, you know, usually wonder, what is Mike talking about when he doesn't agree with my data, doesn't agree with him? No, seriously, it's it's all good. Actually, we do look at yours and other sort of statistics from the MLS world to sort of understand what's going on in ours and how well we continue to correlate. And if we're not correlating what's going on, what's going on? Yeah. Anytime you you notice a divergence, we should bring it up and like, let's go investigate, like dive in and I like that plan. Yeah, do some of those because those are those are where there's really fascinating. They may be inflection points, right? Like, oh, you know, we haven't been paying attention to this this condition that's underway. That's absolutely right. Either that or some data error in how we got the data, because, you know, that happens all the time, too, right? Right. Yeah. Yeah. Yeah. It's never perfectly clean. OK, so we talked about broader economy. Let's as we get close to wrap up here. One of the things I'd like to ask all my guests is about their vision of the longer term future of the housing market. Suddenly, we're in the mid to the 2020s. Like what's the next decade look like? So I used to have a really great answer for that. And it was when something like this. Well, it's phenomenal. You know, housing. Everybody needs it. And you can't outsource it. Right. OK, so those still apply. There is one problem. We have not built enough of it. And so the long term challenge ultimately for us in the housing industry writ large is how do we build a lot more homes? We were I went back and looked all the way back to the 1920s for the amount of home building that was happening. And because we're looking over such a long period of time, we have to sort of control for the size of the population. Right. And no surprise. We were building, you know, 20, 20 homes per 10,000 per thousand households a year in the 20s. We didn't build very much during the Great Depression. We started to build a lot more after the Depression. We didn't build very much during World War Two. We were busy building tanks and jeeps instead. Right. But notably, with the GI Bill and coming out of the of the Second World War, we ramped up to building something like 45 homes per thousand households a year in the mid in the mid to late 40s by 1949. We have never built that much since. And now we're building something like 10. So there is a over the last 10 to 15 years, we have so significantly under built relative to the number of households in the United States. And remember, you can't outsource it like it doesn't matter that there's lots of condos in China, like we don't need them there. We're all here. We have not built enough. And that's a challenge, I think, for us, because while we pretty much built the suburbs in the 40s and 50s, it's not going to be as easy to ramp up building because of regulation and land use. And where would we put it and how far away from the work centers is it this go around? But I think that's the big challenge for us as an industry is is to find a way to essentially provision more housing stock because we're well under provision at this point. Do you see any optimism in that? Like, is there anything changing? Not in the short run, I don't think in the short run, but you see it in some of the policies that have been proposed. I mean, there is a recognition now that that is an issue. The supply side is a problem. And so the you know, what do they say? The first step on the road to recovery is to recognize that you have a problem. So here we go. I think I think that's exactly that's a great way to put it. And I feel like there is recognition, policy level recognition that we do have a problem. Exactly. Yeah. Margaret has been terrific. Thank you so much. You do your podcast, your your RE Economy podcast that comes out, it's weekly a couple of times a week. It's pretty, pretty good. It's every other Thursday. So every two weeks on Thursdays. Yeah, yeah. Yeah. We have a blast, Odette and I. And I know you like the 80s, but I apparently am known for doing bad 80s singalongs and 80s dad jokes. So if that doesn't entice your listeners, I don't know what will. It's really great. I love I love that you guys are both super skilled and talking about what's going on. So that's a terrific one. And you publish on the First American website. What's the URL for that? For people to be able to read your stuff? Yep. It's firstdam.com slash economics. Yeah, economics and firstdam.com. Yeah. And publish multiple times a week there. And that's also where you can go get links to our podcast. And then, of course, on any of the podcast platforms. There's my plug. And thanks for letting me give it. Yeah. Well, it's great. And it's really good work. And you, Odette, are both terrific in and talking about the space. So I can't believe we blew through an hour already. There's a there's a lot going on. Mark, thank you so much for your time, everybody. This is the Top of Mind podcast. Thanks for listening. If you enjoyed it. I really appreciate a review like five stars because that helps other people find it. And, you know, when they're watching, we're paying attention to Mark's podcast and there's like, oh, you might also like the Top of Mind podcast. So you get to definitely put that plug in, Mike. That's right. Yeah. Terrific. Everybody, thanks. We'll be back again soon.