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29 November 2025 November 2025 » C O V E R S T O R Y downturn could quickly reverse those wealth effects, leading to a pullback in consumption and tightening credit con- ditions that would ripple through hous- ing and mortgage markets. The timing of any such correction is inherently difficult to predict—Alan Greenspan's 1996 warning about "irrational exuber- ance" came years before the eventual dotcom bust—but the warning signs are familiar. Today, with financial markets priced to perfection, inflation sticky, and the Federal Reserve contending with stagflation-like pressures, the econom- ic backdrop is increasingly uneven: spending is being driven by those at the top, while lower-income households are struggling to keep pace. That imbalance makes the economy—and its feedback loop with housing—the most important dynamic to watch in 2026. MARK FLEMING SVP, Decision Science and Chief Economist, First American Financial Corporation Q: How do you expect affordability to evolve in 2026, and which factors (prices, rates, income) will drive most of the change? FLEMING: Affordability will gradually continue to improve as mortgage rates decline modestly, and, more importantly, as household income growth outpaces slow house price appreciation, and even declining house prices in some markets. Q: You've written about why the housing market recovery may be "less reliant" on Fed rate cuts than many believe. Could you expand on that? What other dynamics are more important for 2026 than simply waiting for rate cuts? FLEMING: Mortgage rates are not expected to fall nearly enough to meaningfully unlock the millions of homeowners currently rate-locked in. Life events, such as marriage, expanding families, job changes, and divorce, will spur the housing market's recovery next year. Housing turnover still happens because life happens. Life events always have and always will drive sales activity. We can't rely on mortgage rates to save the day and spur large increases in sales activity as has often happened in the past, but we can rely on life events