Calculated Risk

Friday, January 02, 2026

Inflation Adjusted House Prices 2.7% Below 2022 Peak

by Calculated Risk on 1/02/2026 11:12:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Inflation Adjusted House Prices 2.7% Below 2022 Peak

Excerpt:

It has almost 20 years since the housing bubble peak, ancient history for many readers!

In the October Case-Shiller house price index released Tuesday, the seasonally adjusted National Index (SA), was reported as being 78% above the bubble peak. However, in real terms, the National index (SA) is about 9.7% above the bubble peak (and historically there has been an upward slope to real house prices). The composite 20, in real terms, is 1.1% above the bubble peak.
...
People usually graph nominal house prices, but it is also important to look at prices in real terms. As an example, if a house price was $300,000 in January 2010, the price would be $448,000 today adjusted for inflation (49% increase). That is why the second graph below is important - this shows "real" prices.br />
The third graph shows the price-to-rent ratio, and the fourth graph is the affordability index. The last graph shows the 5-year real return based on the Case-Shiller National Index.
...
The second graph shows the same two indexes in real terms (adjusted for inflation using CPI).

In real terms (using CPI), the National index is 2.7% below the recent peak, and the Composite 20 index is 3.0% below the recent peak in 2022.

Both the real National index and the Comp-20 index increased in October. This was the first increase in the real National index has in 10 months.

It has now been 41 months since the real peak in house prices. Typically, after a sharp increase in prices, it takes a number of years for real prices to reach new highs (see House Prices: 7 Years in Purgatory)

There is much more in the article!

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Question #1 for 2026: How much will the economy grow in 2026? Will there be a recession in 2026?

by Calculated Risk on 1/02/2026 08:11:00 AM

A year ago, I argued that "Looking at 2025, a recession is mostly off the table." I did go on recession watch during 2025 due to the tariffs, but I noted I wasn't forecasting a recession.

Even though job growth will likely be sluggish in 2026, fiscal policy will be supportive of economic growth and there will be some boost from a rebound from the government shutdown. So, I think a recession in 2026 is very unlikely. Of course there are always exogenous events such as another pandemic, super volcanoes, a major meteor strike or even nuclear war.

It is possible that we will see a pull back in AI and data center investing, and that might negatively impact growth, but that would likely be a 2027 story. It is very likely that many of the tariffs will be ruled illegal (they clearly are illegal), but the Administration has other tools to enact tariffs (more economic uncertainty).

I've expressed concern about unregulated or poorly regulated areas of finance leading to another financial crisis, but that takes a few years to happen.

Here is a table of the annual change in real GDP since 2005. Note: This table includes both annual change and Q4 over the previous Q4 (two slightly different measures).

Real GDP Growth
Year	Annual GDP	Q4 / Q4
2005	3.5%	3.0%
2006	2.8%	2.6%
2007	2.0%	2.1%
2008	0.1%	-2.5%
2009	-2.6%	0.1%
2010	2.7%	2.8%
2011	1.6%	1.5%
2012	2.3%	1.6%
2013	2.1%	3.0%
2014	2.5%	2.7%
2015	2.9%	2.1%
2016	1.8%	2.2%
2017	2.5%	3.0%
2018	3.0%	2.1%
2019	2.6%	3.4%
2020	-2.1%	-0.9%
2021	6.2%	5.8%
2022	2.5%	1.3%
2023	2.9%	3.4%
2024	2.8%	2.4%
2025¹	2.1%	2.1%
¹ 2025 estimate

Real GDP growth is a combination of labor force growth and productivity.

Productivity varies and is difficult to predict, but the labor force growth will likely be sluggish in 2026. So, my guess is that real annual GDP growth will be less than the FOMC expects, perhaps close to 2%.

Here are the Ten Economic Questions for 2026 and a few predictions:

Thursday, January 01, 2026

Question #2 for 2026: How much will job growth slow in 2026? Or will the economy lose jobs?

by Calculated Risk on 1/01/2026 02:36:00 PM

Last year, I wrote about 2025:

"So, my forecast is for gains of around 1.0 million jobs in 2025. This will probably be the slowest job growth since 2010 (excluding the 2020 pandemic job losses)."

That was a little optimistic - excluding the pandemic and the great recession - 2025 saw the fewest jobs added since 2003. Ouch.

For review, here is a table of the annual change in total nonfarm, private and public sector payrolls jobs since 1997.

Change in Payroll Jobs per Year (000s)
	Total, Nonfarm	Private	Public
1997	3,406	3,211	195
1998	3,046	2,733	313
1999	3,188	2,727	461
2000	1,933	1,669	264
2001	-1,733	-2,284	551
2002	-518	-751	233
2003	124	166	-42
2004	2,040	1,893	147
2005	2,529	2,343	186
2006	2,091	1,882	209
2007	1,146	858	288
2008	-3,548	-3,728	180
2009	-5,039	-4,965	-74
2010	1,022	1,238	-216
2011	2,058	2,370	-312
2012	2,186	2,253	-67
2013	2,299	2,366	-67
2014	2,991	2,864	127
2015	2,7173	2,563	150
2016	2,331	2,124	207
2017	2,115	2,035	80
2018	2,286	2,159	127
2019	1,986	1,771	215
2020	-9,274	-8,199	-1,048
2021	7,233	6,837	396
2022	4,555	4,256	299
2023	2,594	1,860	734
2024	2,012	1,559	453
2025	610¹	766¹	-156¹
¹11 Months through November.

The bad news is the job market has stalled. The BLS noted in December:

"Total nonfarm payroll employment ... has shown little net change since April."

Fed Chair Powell noted at the recent FOMC press conference that the economy might have lost an average of 20,000 jobs per month over that period.

Click on graph for larger image.

And more bad news - for job growth - is that the labor force will grow slowly in 2026!

This graph shows the jobs added per month since January 2021.

It appears that population growth will be slow in 2026 (births minus deaths plus net immigration) and the overall participation rate will decline due to demographics. That suggests that labor force will grow slowly. My sense is the economy will not lose jobs in 2026, but it is possible.

So, my forecast is for gains of around 0.6 to 1.0 million jobs in 2026. This might be an even slower year for job growth than 2025!

Here are the Ten Economic Questions for 2026 and a few predictions:

• Question #1 for 2026: How much will the economy grow in 2026? Will there be a recession in 2026?

• Question #2 for 2026: How much will job growth slow in 2026? Or will the economy lose jobs?

• Question #3 for 2026: What will the unemployment rate be in December 2026?

• Question #4 for 2026: What will the participation rate be in December 2026?

• Question #5 for 2026: What will the YoY core inflation rate be in December 2026?

• Question #6 for 2026: What will the Fed Funds rate be in December 2026?

• Question #7 for 2026: How much will wages increase in 2026?

• Question #8 for 2026: How much will Residential investment change in 2026? How about housing starts and new home sales in 2026?

• Question #9 for 2026: What will happen with house prices in 2026?

• Question #10 for 2026: Will inventory increase further in 2026?

Question #3 for 2026: What will the unemployment rate be in December 2026?

by Calculated Risk on 1/01/2026 09:11:00 AM

Click on graph for larger image.

The unemployment rate is from the household survey (CPS), and the rate increased in November to 4.6%, up from 4.2% in November 2024. An unemployment rate of 4.6% over the next few months might suggest an employment recession according to the Sahm rule.

Forecasting the unemployment rate includes forecasts for economic and payroll growth, and also for changes in the participation rate (previous question).

"Uncertainty" was the key economic word for 2025, and probably for 2026 too. There is significant uncertainty in the labor market with signs of weak hiring and concerns that AI will impact job growth. Sometimes an employment recession continues as some employed individuals become cautious. At the same time, we should see some economic boost from fiscal policy in 2026.

It appears that the participation rate will decline in 2026 based on demographics and that population growth will be slow due to less net migration. That suggests that the labor force will grow slowly in 2026. So even if job growth stays slow in 2026 (next question), the unemployment rate might stabilize or even decline.

However, my guess is the unemployment rate will be in the mid-to-high 4% range in December 2026.

Wednesday, December 31, 2025

Thursday: Happy New Year!

by Calculated Risk on 12/31/2025 08:04:00 PM

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

Thursday:
• The NYSE and the NASDAQ will be closed in observance of the New Year’s Day holiday

Question #4 for 2026: What will the participation rate be in December 2026?

by Calculated Risk on 12/31/2025 12:56:00 PM

Earlier I posted some questions on my blog for next year: Ten Economic Questions for 2026. Some of these questions concern real estate (inventory, house prices, housing starts, new home sales), and I posted thoughts on those in the newsletter (others like GDP and employment will be on this blog).

I'm adding some thoughts and predictions for each question.

Here is a review of the Ten Economic Questions for 2025.

4) Participation Rate: In November 2025, the overall participation rate was at 62.5%, unchanged year-over-year from 62.5% in November 2024, and below the pre-pandemic level of 63.3% in February 2020. Long term, the BLS is projecting the overall participation rate will decline to 61.1% by 2034 due to demographics. What will the participation rate be in December 2026?

The overall labor force participation rate is the percentage of the working age population (16 + years old) in the labor force. A large portion of the decline in the participation rate since 2000 was due to demographics and long-term trends.

The Labor Force Participation Rate in November 2025 was at 62.5% (red), down from the pre-pandemic level of 63.3% in February 2020, and up from the pandemic low of 60.2% in April 2020. (Blue is the employment population ratio).

From February 2020 to April 2020, 12 million people had left the labor force due to the pandemic. By November 2025, the labor force was about 4 million higher than the pre-pandemic high.

Population growth had been weak in the 2010s, but picked up over the last few years, primarily due to more immigration. However, net immigration slowed in late 2024 and slowed sharply in 2025.

The second graph shows the participation rate for "prime age" workers (25 to 54 years old). The 25 to 54 participation rate was at 83.8% in November 2025 Red), above the pre-pandemic level of 83.0% - and near the all time high of 84.6% in 1999. This suggests there are very few prime age workers that will return to the labor force.

This means demographics will be the key driver of the participation rate in 2026 (barring some unseen event). Demographics will be pushing the participation rate down over the next decade, so, my guess is the participation rate will decline by 0.2 to 0.3 percentage points over the next year to around 62.3% in December 2026.

Freddie Mac House Price Index Up 1.0% Year-over-Year in November

by Calculated Risk on 12/31/2025 09:39:00 AM

Today, in the Calculated Risk Real Estate Newsletter: Freddie Mac House Price Index Up 1.0% Year-over-Year in November

A brief excerpt:

Freddie Mac reported that its “National” Home Price Index (FMHPI) increased 0.19% month-over-month (MoM) on a seasonally adjusted (SA) basis in November.

On a year-over-year (YoY) basis, the National FMHPI was up 1.0% in November, down from up 1.1% YoY in October. The YoY increase peaked at 19.2% in July 2021, and for this cycle, and previously bottomed at up 1.1% YoY in April 2023. The YoY change in November is a new cycle low. ...

As of November, 19 states and D.C. were below their previous peaks, Seasonally Adjusted. The largest seasonally adjusted declines from the recent peaks are in D.C. (-4.9%), Montana (-3.2%), and Florida (-2.8%).

For cities (Core-based Statistical Areas, CBSA), 140 of the 387 CBSAs are below their previous peaks.

Here are the 30 cities with the largest declines from the peak, seasonally adjusted. Punta Gorda has passed Austin as the worst performing city. Note that 5 of the 6 cities with the largest price declines are in Florida.

A third of the cities on the list are in Florida.

There is much more in the article!

Weekly Initial Unemployment Claims Decrease to 199,000

by Calculated Risk on 12/31/2025 08:30:00 AM

The DOL reported:

In the week ending December 27, the advance figure for seasonally adjusted initial claims was 199,000, a decrease of 16,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 214,000 to 215,000. The 4-week moving average was 218,750, an increase of 1,750 from the previous week's revised average. The previous week's average was revised up by 250 from 216,750 to 217,000.
emphasis added

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 218,750.

Tuesday, December 30, 2025

Wednesday: Unemployment Claims

by Calculated Risk on 12/30/2025 07:29:00 PM

Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

Wednesday:
• At 8:30 AM, The initial weekly unemployment claims report will be released.

FHFA’s Q3 National Mortgage Database: Outstanding Mortgage Rates, LTV and Credit Scores

by Calculated Risk on 12/30/2025 02:24:00 PM

Today, in the Calculated Risk Real Estate Newsletter: FHFA’s Q3 National Mortgage Database: Outstanding Mortgage Rates, LTV and Credit Scores

A brief excerpt:

Here are some graphs on outstanding mortgages by interest rate, the average mortgage interest rate, borrowers’ credit scores and current loan-to-value (LTV) from the FHFA’s National Mortgage Database through Q3 2025 (released this morning).
...
This shows the surge in the percent of loans under 3% starting in early 2020 as mortgage rates declined sharply during the pandemic.

Note that a fairly large percentage of mortgage loans were under 4% prior to the pandemic!

The percent of outstanding loans under 4% peaked in Q1 2022 at 65.1% (now at 51.5%), and the percent under 5% peaked at 85.6% (now at 68.6%). These low existing mortgage rates make it difficult for homeowners to sell their homes and buy a new home since their monthly payments would increase sharply.

This was a key reason existing home inventory levels were so low. However, time is eroding this lock-in effect.

There is much more in the article.

Friday, January 02, 2026

Inflation Adjusted House Prices 2.7% Below 2022 Peak

Question #1 for 2026: How much will the economy grow in 2026? Will there be a recession in 2026?

Thursday, January 01, 2026

Question #2 for 2026: How much will job growth slow in 2026? Or will the economy lose jobs?

Question #3 for 2026: What will the unemployment rate be in December 2026?

Wednesday, December 31, 2025

Thursday: Happy New Year!

Question #4 for 2026: What will the participation rate be in December 2026?

Freddie Mac House Price Index Up 1.0% Year-over-Year in November

Weekly Initial Unemployment Claims Decrease to 199,000

Tuesday, December 30, 2025

Wednesday: Unemployment Claims

FHFA’s Q3 National Mortgage Database: Outstanding Mortgage Rates, LTV and Credit Scores

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