Odeta Kushi, deputy chief economist at First American, says that the 2027 housing market is likely to be constrained due to higher mortgage rates, but factors like household income growth and cooler home price appreciation will present opportunities for housing professionals and their clients.
Kushi, who’s been with First American for more than a decade, sat down with HousingWire at last week’s Mortgage Bankers Association Annual Conference & Expo in Chicago. She discussed a range of topics tied to housing affordability and supply, the labor market, artificial intelligence and aging in place.
Editor’s note: This interview has been edited for length and clarity.
Neil Pierson: Let’s start by talking about housing affordability issues. First American’s most recent Real House Price Index showed that the U.S. is about 5% less affordable than the same point last year. In the face of higher mortgage rates and other factors, what do you expect to happen in the months ahead?
Odeta Kushi: I would expect some further deterioration now that rates have climbed above 7% and have stayed there. I would expect the mortgage rate piece to drag affordability lower, but I would say the upside is we’re still seeing income growth outpace house price growth. That’s been the case all year. That’s in part because we continue to see positive income growth, but also because house price growth has been quite slow.
Our index shows that we’re at 1% year-over-year house price growth. Historically, we’re closer to 3.5%. It’s pretty slow at a national level, and that’s being dragged lower by a lot of the Sun Belt markets that we know are now seeing depreciation. But then you have places like Chicago where prices are still showing 5% to 6% growth year over year, so some of those regional variations and that push-pull dynamic has contributed to pretty slow growth.
Pierson: What are your views on the current labor market? Some people view it as stagnant, but if that were really true, wouldn’t the Federal Reserve be doing more to spur activity? Their officials don’t seem overly concerned.
Kushi: I would argue that a resilient labor market has allowed the Fed to increase interest rates because they feel comfortable trying to slow down the economy without tipping it into a job-loss recession. I would classify it as stable as of right now.
And not to overuse the term “low hire, low fire,” but I do think that there’s something to that. We’re in a labor market where employers aren’t necessarily hiring, and they’re also not firing, which means employees are staying put. They’re not switching jobs very often, which is a big trigger for buying and selling a home.
I think that the labor market sort of being stuck has direct implications for the housing market and the fact that the housing market has been sort of frozen as well. Once we start to see the labor market pick up, I think you’ll start to see some of those positive effects on the housing market as well.
For five consecutive months as of August, the rate of inflation has been above wage growth, which is a bit concerning for the health of the consumer. But that positive wage growth has been part of the reason that the economy has been so resilient for so long.
Pierson: Fed officials have spoken about on the impact of artificial intelligence on the economy. How do you view that trend? Is it going to be a deteriorating factor going forward if AI essentially replaces some jobs?
Kushi: That remains to be seen. There’s obviously been some pressure for younger workers entering the workforce, but it’s difficult to disentangle whether that’s really an AI impact. I’m sure some of it is, but it’s also tied to the point in the labor market that we’ve been in, which is cyclical cooling.
Historically, we do see that impact to younger people, college grads, entering the workforce. But in fact, you could see a sort of Jevons paradox — essentially where this AI revolution actually makes people more productive and more efficient. The example I’ve given in the past is that maybe a law clerk or a lawyer has traditionally been cost prohibitive, so not a lot of people use them. But suddenly that lawyer becomes more productive. They have these AI research assistants. They can do more with their resources and so it actually becomes cheaper to use them and you actually demand more lawyers.
These AI efficiencies could actually cause demand for labor to go up in certain sectors. And I think there’s some anecdotes of that in the mortgage industry. But AI productivity enhancements take a long time to show up in the data. There’s a famous quote: “You can see the computer age everywhere, except in productivity statistics.” So it could be very similar for AI as well.
Pierson: Let’s talk about migration as there seems to be stagnancy around that too. People are moving less often. But are there any hot spots in the country you’re watching, where people are attracted by the job market and relative affordability, but migration could drive up home prices in the long run?
Kushi: What we’ve seen in the last couple of years is the Sun Belt markets have really been the domestic in-migration hubs. A lot of people moved into Florida and Texas during the pandemic. That’s still the case. Those Sun Belt markets are still popular.
When we look at the population growth stats, North Carolina and South Carolina are up there. Texas is still positive, but the rate of growth is slower than it was at the peak pandemic rate.
The area I’m watching closely is the Midwest. We’ve seen positive domestic in-migration there. I was in Ohio recently. That’s certainly a state where we’ve seen people move in — and that hasn’t been the case in a long time. Mostly, we’ve seen people move out. And I think that’s a relative affordability story. There are very few parts of the country where you can find a home priced below $300,000 these days, and I think that’s part of the story happening in the Midwest.
Pierson: There’s a lack of inventory for senior homeowners, which is a key trend for reverse mortgage professionals. Many seniors might have looked to downsize in the past, but today they can’t find an affordable price point to let go of their low mortgage rate and open up supply for the first-time buyer. Is that problem addressed specifically through increased supply, or do you need a way to incentivize these people to move?
Kushi: We do see the aging-in-place trend that’s been happening for some time. Technology has enabled seniors to live in their homes comfortably and for their homes to meet their needs. We do generally expect what we’re calling the “silver housing handoff” to occur gradually over the next decade or so, and that’s just simply due to aging out of their homes.
We know historically that when people hit 80 and above, they tend to age out of their homes into retirement communities, or they die, of course. We do expect that trend to unleash homes on the market. This is a huge demographic. They own a lot of homes in prime locations, but those homes will need some work, some renovation, to be made attractive to the next generation of buyers.
That will also happen over time and that could speed the transition to the younger, potentially first-time homebuyers. But these homes tend to be bigger; they’re not necessarily starter homes. They’re not one to two bedrooms. They’re three to five bedrooms. So they may skip that potential first-time buyer and go to the people looking for their forever home.
Pierson: HUD officials Joe Gormley and Matt Jones spoke at MBA Annual about renovation financing, which could be beneficial in these situations.
Kushi: Absolutely. We think there’s a boon for the remodeling industry to work on those homes. There are definitely silver linings.
We’ve done some analysis on home equity lines of credit, and that’s certainly an opportunity right now for those that don’t want to lose their ultra-low mortgage rate. A lot of these seniors have been in their homes for a long time. They’ve built quite a bit of equity over the years, so they can use that money for renovation or consolidation of debt.
The report we’re working on is in its final stages. The finding is pretty intriguing — accessible equity or tappable equity across the nation has reached over $13 trillion. It’s about $240,000 per home in our sample. That’s pretty significant.
That combination of “I have a lot of equity” and “I’m severely rate locked” presents a good HELOC opportunity for those homeowners. We found that 88% of this $13 trillion in equity is rate locked. Among that group, 83% are severely rate locked, with a mortgage that’s at least 150 basis points below the prevailing rate.
