We were lucky enough to have Mark Fleming, the Chief Economist for First American Financial Corp, give an exclusive market update for Navi Title. Mark and my boss Anthony Penna bonded over their love of the Eagles, which persists regardless of a tough season this year. 😊 We benefitted from their friendship. Mark is a big deal, and he shared some big insights with us.

The Bottom Line

Our market is no longer rate driven. We are now into our new normal. 6% to 7.5% rates should be expected for the foreseeable future. It will take some time for the market to adjust to that and feel comfortable with that. The market has pretty much found its floor. It is roughly 4 million sales a year. This is the 4^th year of that rate. The 25 year average is about 5M to 5.5M annually. For Greater Phoenix the floor is likely to be around 68,000 to 70,000 and our 25 year average is about 86,000.

The Short Version

If you only have two minutes, here is what Mark wants us to know:

• This is not a crash. It’s a new normal. For about 20 years, falling rates drove sales volume. That tailwind is gone, and what’s left is what has always powered housing underneath: life events.
• Rates are higher for longer. Mark expects mortgage rates to settle around 7.5% to 8% over the next 6 to 12 months, no matter what the Fed does. His reminder: 6% to 7% is historically normal. The sub-3% era was the anomaly.
• The Fed is leaning toward hikes, not cuts. Fed funds sit at 3.75% to 4.00%. As of October 19, markets put 75% odds on a hike by December, and most expect about a full point of hikes in total by late summer 2027.
• About 4 million sales looks like the floor. Existing home sales held at about 4 million in 2023, 2024 and 2025. Mark believes that’s the level driven by life events alone: marriage, babies, divorce, job changes and aging.
• Buyers are waiting, not gone. First-time buyers are over 60% of agency purchase loans, the typical first-time buyer is about 32 (not 40), and hundreds of thousands of “owner-ready” young adults are living with their parents.
• Lock-in is loosening. More outstanding mortgages now carry a rate of 6% or higher than carry a rate under 3%.
• We’re still short on housing. The U.S. is undersupplied by about 764,000 units, and sales are running roughly 2 million a year below normal turnover.
• New can be cheaper than resale. In August, the national median new home was $393,700 vs. $429,100 for an existing home. Be careful with builder rate buydowns, though. They can leave buyers with less equity than they think.
• Affordability is improving, slowly. Phoenix is improving faster than the nation because prices dipped. Mark thinks a full recovery takes another 5 to 7 years.
• No bubble. Homeowners hold about $13 trillion in equity, and foreclosures need both an inability to pay and negative equity.
• Phoenix is younger than its reputation. It’s attracting young households, building across every price tier, and is still relatively affordable compared to much of the West.

Here’s the two-page summary of Mark’s talk. You can also download it as a PDF to save or share.

The Full Write-Up

Mark’s slides are below in the order he presented them, with a few notes from his talk on each one.

The New Economics of Housing: Housing Recovery Without Rates to the Rescue

• Mark introduced himself as a “dismal scientist” and then promised it wouldn’t be that bad.
• His core message: we’re in a new normal we haven’t seen in almost half a century. For about 45 years, falling rates pushed transaction volume up. That relationship doesn’t work the same way when rates rise.
• What we can count on, life events, has always been there. It was just hidden by decades of falling rates.

Part 1: The Fed’s Balancing Act

Unemployment and Inflation Relative to Their Target

• The Fed has two jobs: stable employment and stable prices. Neither target is zero.
• The unemployment target is about 4%, Mark’s “Goldilocks” number. Above it is too cold, below it is too hot. Unemployment shot above 10% in the pandemic and dropped below target by 2022, which added fuel to inflation. Today it’s right around target.
• The inflation target is 2%. Why not zero? If people expect prices to be lower tomorrow, they stop spending, and consumer spending is about 70% of the U.S. economy. Core PCE inflation is still near 3% (through August), and the Fed’s own forecast only eases it gradually through 2027.

Inflation Is the Economic House Guest That Just Won’t Leave

• Before the pandemic, inflation came mostly from shelter and services. Then came a goods spike from pandemic shopping and clogged ports (“Who here bought a Peloton in the pandemic? It’s all your fault”), followed by the Ukraine war energy and fertilizer shock, which faded by 2023.
• What’s still here is core services, which is mostly service-sector wages. Hotels and restaurants had to pay more to attract workers and passed it on. Service prices are up about 30%, and the overall price level is up roughly a third in four years. Slower inflation doesn’t bring prices back down.
• Newer shocks: tariffs (April 2025) added a modest bump, much smaller than feared, and Iran pushed food and energy up in 2026. Headline CPI was 3.74% in September 2026, with food and energy contributing 1.65 points of that. The Fed can’t control tariffs or Iran, so it’s squeezing consumer spending with rates instead.

A Low Hire, Low Fire Labor Market

• Mark walked through four labor market quadrants: high layoffs with low hiring (2008 to 2009, unemployment rises), low layoffs with high hiring (unemployment falls), and high hiring with high layoffs (lots of job changes, early 2000s).
• Today we’re in the bottom left (red dots): low hiring, low firing. “It’s not a sexy labor market, but it is a stable labor market.”
• The risk: if the Fed squeezes spending too hard, layoffs rise and we tip into a recession. That’s the balancing act.

Real Wages Fell for the Sixth Month in a Row

• Paychecks are growing about 3% a year while prices are rising about 3.5%, so real wages have slipped for six straight months.
• Signs the Fed’s squeeze is working: credit card and car loan delinquencies are rising. Lower-income households feel it most, since most of their income goes to food, shelter and energy.
• The stat that got a reaction in the room: the most common use of Buy Now, Pay Later today is groceries.

Once, Twice, Three Hikes a Maybe?

• The Fed funds target is 3.75% to 4.00%. Per CME FedWatch (October 19): 75% odds of one hike by the December meeting, about 15% odds of two, and about 10% odds of no change. There’s one more meeting before that, in late October.
• Back in April, markets were expecting cuts. Times change quickly.
• Looking into 2027, Mark said most expect about a full percentage point of hikes by late summer 2027. A quarter point is already done, so roughly three quarters of a point to go.

Does Monetary Easing Matter, or Is It All in the Spread?

• Mortgage rates are around 7.5% today (this chart runs through September), and the 10-year Treasury has eased back toward 5% from 5.25% to 5.5%. Mark expects “a teensy little bit” of relief near term because the expected hikes are already “baked in.”
• Zero Fed funds and a 1% 10-year Treasury gave us sub-3% mortgages in 2021. That was the abnormal part. “A 6 to 7% mortgage rate is absolutely normal.” Just ask anyone who bought in 1981.
• The Fed cut in 2025 and mortgage rates didn’t follow. Mark’s forecast: around 7.5%, maybe 8%, over the next 6 to 12 months, regardless of what the Fed does.
• What’s keeping rates up: investors want extra yield (a “term premium”) because of concerns about U.S. debt, and AI companies are issuing billions in bonds at 7% to 8.5%, pulling some investor money away from Treasuries.

Part 2: Housing Demand

Mark’s pivot: “How do we survive in a market where rates don’t come to save us? That’s why we focus on housing demand.”

The Typical First-Time Homebuyer Today Is Likely Not Much Older Than a Decade Ago

• NAR reported a median first-time buyer age of 40, which made a lot of headlines.
• Four other sources (the National Mortgage Database, two Washington Post analyses and the New York Fed) all put it around 32 to 33, about where it’s been for a decade. “Where’s the outlier on this chart? NAR.”
• Mark’s takeaway: there is no first-time buyer crisis. Buyers are a little older, not missing.

First-Time Buyers Are Down But Far From Out

• NAR says the first-time buyer share is at a record low. Fannie Mae and Freddie Mac loan data says the opposite: first-time buyers are over 60% of agency purchase loans, more than repeat buyers.
• Mark’s honest caveat: part of that rising share is “statistical sleight of hand.” Repeat buyers are disappearing because of rate lock-in, which shrinks the denominator.
• Same lesson from the Great Recession: homeownership fell from 69% to 65% mostly because of a surge in young millennial renter households, not just foreclosures. Always ask how the share is calculated.

More Future Buyers Are Waiting in the Shadows

• “Shadow homeowners” are owner-ready young adults (married, maybe kids, good income) who are still living with parents or relatives.
• The 30 to 34 group has grown from about 380,000 in 2015 to roughly 500,000 today. The 25 to 29 group peaked above 500,000 around 2019 and is still about 430,000.
• That’s hundreds of thousands of households held back by affordability and down payments. Real pent-up demand.
• Why they want to own: homeowners have about 44 times the net worth of renters. It’s leverage plus forced savings, and it matters most for the bottom 90% of earners.

Housing Demand: A Tale of Two Sources

• Total demand = new households (births and immigration) + turnover of the homes we already have (life events and pent-up demand).
• Context matters: 4 million sales on 70 million households is not the same as 4 million sales on today’s roughly 130 million households.
• A home lasts 40-plus years. Even with zero household growth, people trade homes. Mark says this is where most macroeconomists miss the mark.

Population Growth Has Largely Been From Immigration

• Early 2000s growth came from both natural growth (births minus deaths) and immigration. The pandemic-era immigration surge, which peaked in 2024, has faded.
• Natural growth is slowing sharply. We’re not having enough babies relative to deaths, and Census projections show annual population growth easing toward about 1 million a year by 2035.
• We’re not alone. Japan and China have it worse. Mark’s view: the U.S. can fix this through immigration because people still want to come here.

Millennials Caught Up, Boomers About to Wind Down

• Every generation is buying later. Peak buying years: Silent Generation in their early 20s, Boomers mid 20s, Gen X late 20s, Millennials mid 30s.
• At age 35, the Silent Generation was about 70% homeowners. Millennials were about 55%. But Millennials have now caught up to Gen X. The old joke that “millennials will never become homeowners” turned out to be wrong. They just waited.
• A big driver is women pursuing more education before starting families. Single women are now the fastest-growing segment of first-time buyers.
• Open question: will Gen Z and Gen Alpha push it even later with more advanced degrees?

Future Demand: Not What It Used to Be, But Still Positive

• The scary headline: only about 30 million net new households over the next 30 years (roughly 10 million a decade), slower than the 1990s and 2000s.
• Underneath that: about 60 million Gen X and Boomer households aging out and about 80 million Gen Z, Gen Alpha and late Millennial households forming. Mark calls it the “Silver Housing Handoff,” not a “silver tsunami,” because demographics move slowly. That’s something like 100 million transactions.
• Location matters. First American’s most imbalanced market (lots of older owners, not enough young buyers moving in) is Toledo, Ohio. The Villages in Florida is another risk. New York and LA have older owners but will keep attracting young people.
• Phoenix: despite its retirement reputation, Phoenix skews young and is relatively affordable, which keeps drawing younger households here.

Part 3: You Can’t Buy What’s Not for Sale

Sales Activity Is Far From Normal, But Signals Pent-Up Demand

• Historically about 4.5% of the housing stock sells each year. Apply that to today’s stock and we’d see about 5.5 million existing home sales. We’re running near 4 million, so about 1.5 million short.
• New homes: normal is about 1.5 million single-family starts. We’re at 800,000 to 900,000, so another 600,000 to 700,000 short.
• Together that’s roughly 2 million “missing” sales a year. That’s not lost demand. It’s waiting.

The Housing Market Is Still Undersupplied by 764,000 Units

• A balanced market has about a 3% to 4% vacancy rate (the same way 2% inflation and 4% unemployment are “normal”). Bars below zero mean tighter than normal.
• We’ve been undersupplied for most of the last decade, which is a big reason prices rose. As of Q2 2026, the gap is 764,000 units, down from close to 2 million at the worst point.

Rate Lock-In Effect Eases

• If you locked in a sub-3% mortgage in 2021, the financially rational move is to do nothing.
• But as of Q2 2026, more outstanding mortgages are at 6% or higher (about 22%) than under 3% (about 19%). That’s new buyers, plus people actually leaving their 3% loans behind.
• From 1981 to 2021, rates kept falling, so people moved about every 7 years because they could afford more house on the same income. That voluntary turnover is what’s missing today.

You Can’t Buy What’s Not for Sale

• This compares new listings and closed sales to 2018 to 2019 levels. Most major metros are still below on both.
• Phoenix sits near the bottom: new listings roughly 17% below and closed sales roughly 35% below pre-pandemic levels (read from the chart).
• What’s left are the “Big Five” life events: marriage, babies, divorce, job changes, and aging or death. None of them wait on rates.
• Add “rate lock-in fatigue”: a new job, outgrowing the house, or touring the open house across the street and falling for the kitchen. As Nobel economist Richard Thaler put it, “We are more like Homer Simpson… than we are like Spock.”
• Existing home sales were about 4 million in 2023, 2024 and 2025. Mark thinks that’s the floor. His half-joking strategy: get to know divorce attorneys and new parents.

The Low Turn, Slow Burn Housing Market

• This plots national price growth against existing home sales as a share of households. More turnover means faster appreciation, because every seller also becomes a buyer.
• Right now (July 2026): sales at 3.0% of households and prices up just 0.8% year over year. “Low turn, slow burn.” Some markets are negative.
• Phoenix is in the moderately negative camp with low turnover. Mark’s caution: the market feels calm, but it’s actually more imbalanced than it’s been in years.

From Oversupply to Occupied

• Mark didn’t dig into this one in detail, but the Phoenix data point is worth a look. It compares new apartment supply (deliveries minus absorption) to rent growth.
• Phoenix rents are down about 4.5% year over year, among the steepest drops on the chart. But new excess stock is negative (-0.3% of inventory), meaning more units are being absorbed than delivered. The oversupply is being worked off.
• Tucson: rents down 1.9%, excess stock at -0.7%.

Part 4: If Not Used, Then New?

Mark’s joke: a car someone else drove is used. Clothes someone else wore are used. A home someone else lived in is… “resold.” It’s used!

Building the Housing Debt

• This compares new homes completed to new households formed. Below zero means we’re not building enough to keep up.
• We’ve underbuilt for most of the period since about 2016, with the deepest gap around 2020 to 2021 (about 1.4 million). It has narrowed but is still negative.

New Is Not Necessarily More Expensive

• The old ladder: buy the little starter home, move up, and around the third purchase land the bigger, pricier new “dream home.”
• That’s flipped in many markets, especially the Sun Belt. Builders are building smaller homes on smaller lots, so new is often cheaper than resale. The gray shading shows months when the existing median topped the new median. In August 2026 it was $393,700 for new vs. $429,100 for existing nationally.
• Builders took share from resale over the last few years with less competition and rate buydowns. Mark says that’s starting to change.
• The buydown caution: a builder buying a 7% rate down to 5.5% is roughly the same as $50,000 off a $400,000 home. Builders prefer it because it keeps prices and comps up. The catch: if that buyer sells in a few years without a buydown, the next buyer may only pay around $365,000, leaving the original buyer with little or negative equity. Mark’s advice: when you can, buy at the true comp price.

Know Your Customer: Not Just for the Move-Up Buyer (National)

• Nationally, new construction’s share of sales is highest in the medium-high and high tiers (about 20%), followed by low-medium (about 17%), and lowest in the low tier (about 7%).
• Every tier has been trending up since 2012. New construction isn’t just for move-up buyers.

Know Your Customer: Not Just for the Move-Up Buyer (Phoenix)

• Phoenix is above the national average in every tier: about 20% of all sales are new construction, about 25% in the low-medium tier, about 23% in medium-high and high, and about 10% in the low tier.
• Mark said Phoenix has a healthy mix of new building across income levels, including a meaningful share of affordable homes.
• Compare that to Columbus, Ohio, where almost nothing gets built at the low end: about $150,000 per unit in regulatory and permitting costs, mostly small infill projects, and established neighborhoods of big, older homes.

Raising Roofs Lowers Prices

• More building means less upward pressure on prices. The trend line slopes down: markets issuing the most permits have the flattest prices.
• Phoenix is one of the most active building markets, at roughly 19 single-family permits per 1,000 households, with prices down about 1% year over year (Zillow, August 2026).
• Markets that barely build, like Hartford and Milwaukee, are still seeing about 5% to 6% appreciation. The Sun Belt, from the Carolinas through Texas to Arizona, builds more, skews younger and offers more affordable price points.

Part 5: Lost Affordability

What’s the “Real” House Price?

• Mark’s milk test: if milk and your income both rise 5%, you can buy the same amount of milk. Homes are different because we buy them with mortgages, so rates matter.
• First American’s Real House Price Index (RHPI) adjusts prices for income and mortgage rates. Rising RHPI means affordability is getting worse. Falling RHPI means it’s improving.
• Since 2000, house prices are up about 2.5 times, but buying power rose about 3.5 times through 2021 thanks to falling rates. Homes were actually more affordable in 2021 than in 2000.

Affordability Continues to Improve on an Annual Basis (U.S.)

• In 2022, rate hikes plus still-rising prices delivered a huge hit to affordability.
• Over the last year and a half, prices flattened, rates eased a bit and incomes kept growing, so affordability has been slowly improving nationwide.
• We tend to compare everything to 2021, but 2021 was “crazy, overly affordable.” Cheap money let buyers keep escalating bids (Mark’s example: escalating by $400,000 to win a home at $1.5 million).
• How it gets fixed: prices drop 20% to 30% (not happening), rates drop dramatically (not happening), incomes jump 20% (not happening), or time. Mark estimates another 5 to 7 years.

Falling House Prices Improve Affordability in Phoenix

• Phoenix is regaining affordability faster than the nation because home prices have come down modestly (the orange bars below zero).
• Mark expects a little “ripple effect” over the next few months from the recent jump in mortgage rates.

What Higher Mortgage Rates Do to House-Buying Power

• Holding July 2026 incomes constant, here’s how much house a typical household can afford: $524,450 at 4.00%, $404,509 at 6.30%, $394,485 at 6.54% (July 2026), $358,088 at 7.50%, and $341,227 at 8.00%.
• The August 2026 national medians were $393,700 for a new home and $429,100 for an existing home.
• At today’s roughly 7.5%, that household falls about $36,000 short of the median new home and about $71,000 short of the median existing home.

As Inventory Normalizes, Affordability Improves

• Markets where for-sale inventory has rebuilt toward 2018 to 2019 levels are seeing the biggest affordability gains. Texas and Florida metros like Austin, Dallas and Tampa are among the leaders.
• Phoenix inventory is close to its 2018 to 2019 benchmark (a few percent below), and real house prices are down about 4% year over year, so affordability is improving here.

Where Can Renters Find the Largest Supply of Affordable Homes?

• This uses the median renter’s income (about a third of the median homeowner’s), because renters are tomorrow’s first-time buyers. It assumes 20% down and a 33% debt-to-income ratio.
• St. Louis leads, with nearly 60% of homes for sale affordable to the median renter. Los Angeles is at the bottom at about 3%. California and Boston make up most of the least affordable group.
• Phoenix comes in around 22%, below the national figure of about 33% but well ahead of the California markets.

Q&A Highlights

• Is there a bubble? No. Homeowners hold about $13 trillion in equity. Foreclosures are a “dual trigger” problem: you need both an inability to pay and negative equity. If you have equity, you sell. If you’re underwater but still paying, nothing happens. The risk pockets are markets with lots of low-down-payment VA loans, like Tampa Bay and other parts of Florida’s Gulf Coast, where VA delinquencies are above pre-crisis levels.
• How do you track “shadow” households? An annual Census survey asks households whether adult children live with them, plus their age, marital status, kids and income.
• Has the first-time buyer definition changed? The classic Fannie Mae and Freddie Mac definition is anyone who hasn’t owned a home in the last seven years. NAR’s comes from surveys, including asking agents whether their client is a first-time buyer.
• What happens to NAR? “They’ll be fine.” It’s one of the most successful lobbying groups around, though Mark often disagrees with their numbers. He joked that the only bigger “trade association” is homeowners, who show up in force at local hearings to fight new development, even though studies show development usually helps nearby home values.
• Any chance of rate relief? Resolution in Ukraine and Iran could ease some pressure. Big rate drops usually come with bad news like a pandemic or a deep recession. “This is actually a normal historical mortgage rate environment.”
• What about AI? Housing is a matching market, like a dating app. AI lowers the cost of information and matching. Most economists expect higher productivity and, over time, more jobs, even if the transition is messy.
• Do elections affect home sales? Historically, no meaningful impact. If you just had a kid and need a bigger home, an election isn’t going to change that.
• Where does Mark park his money? “I’m an economist. I’m really boring.” He’s diversified across domestic stocks, international stocks and bonds. His tip: savers are finally winning, with money markets and 10-year Treasuries paying around 5% at very low risk.

Follow FirstAm Economics

• Mark and Deputy Chief Economist Odeta Kushi host the REconomy Podcast: 15 to 20 minutes every other Thursday. Mark has a streak of about 150 episodes tying ’80s music or movies to real estate economics, plus the occasional dad joke.
• More research at FirstAm.com/Economics (QR codes on the slide).

A huge thank you to Mark for spending the afternoon with us, and to Anthony for making it happen. If you’d like to talk through what any of this means for your buyers and sellers, just reply. I’m always happy to dig into the numbers with you.

Slides: Mark Fleming, SVP and Chief Economist, First American Financial Corporation, “The New Economics of Housing,” October 2026. Notes are from Mark’s presentation for Navi Title on October 21, 2026. Figures marked “roughly” or “about” for individual metros are read from the charts.

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