by Calculated Risk on 12/21/2025 08:21:00 AM

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

Below are my ten questions for 2026 (I've been doing this online every year for 21 years!).  These are just questions; I'll follow up with some thoughts on each of these questions.

The purpose of these questions is to provide a framework of how the U.S. economy will likely perform in 2026, and if there are surprises - like in 2020 with the pandemic - to adjust my thinking.

  

1) Economic growth: Economic growth was probably close to 2% Q4-over-Q4 in 2025.  The FOMC is expecting growth of 2.1% to 2.5% Q4-over-Q4 in 2026. How much will the economy grow in 2026?  Will there be a recession in 2026?

2) Employment: Through November 2025, the economy added 610 thousand jobs in 2025.   How many jobs will be added in 2026?  Or will the economy lose jobs? 

3) Unemployment Rate: The unemployment rate was at 4.6% in November, up from 4.2% in November 2024.   Currently the FOMC is projecting the unemployment rate will decrease to the 4.3% to 4.4% range in Q4 2026.  What will the unemployment rate be in December 2026?

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?

5) Inflation: Core PCE was up 2.8% YoY through September. This was down from a peak of 5.6% in early 2022.  The FOMC is forecasting the YoY change in core PCE will be in the 2.4% to 2.6% range in Q4 2025. Will the core inflation rate decrease further in 2026, and what will the YoY core inflation rate be in December 2026? 

6) Monetary Policy:  The FOMC cut the federal funds rate three times in 2025 from "4-1/4 to 4-1/2 percent" at the beginning of 2025, to "3-1/2 to 3-3/4" at the end of the year. The mid-range on the "dot plot" suggests many FOMC participants expect around one to two 25 bp rate cuts in 2026.  What will the Fed Funds rate be in December 2026?

7) Wage Growth: Wage growth was decent in 2025, up 3.5% year-over-year as of November.  How much will wages increase in 2026?

8) Residential Investment: How much will Residential investment (RI)  change in 2026?  How about housing starts and new home sales in 2026?

9) House Prices: It appears house prices - as measured by the national repeat sales index (Case-Shiller, FHFA, and Freddie Mac) - will be mostly flat in 2025.  What will happen with house prices in 2026?

10) Housing Inventory: Housing inventory decreased sharply during the pandemic to record lows in early 2022.  Since then, inventory has increased but is still below pre-pandemic levels.  Will inventory increase further in 2026?

by Calculated Risk on 12/20/2025 02:11:00 PM

At the Calculated Risk Real Estate Newsletter this week:

Click on graph for larger image.

• NAR: Existing-Home Sales Increased to 4.13 million SAAR in November

• Lawler: Another Strange NAR Reading on Northeast Median Sales Prices

• Lawler: Early Read on Existing Home Sales in November and Update on Mortgage/MBS Yields and Spreads

• Part 1: Current State of the Housing Market; Overview for mid-December 2025

• Part 2: Current State of the Housing Market; Overview for mid-December 2025

• 3rd Look at Local Housing Markets in November

This is usually published 4 to 6 times a week and provides more in-depth analysis of the housing market.

by Calculated Risk on 12/20/2025 07:37:00 AM

Happy Holidays and Merry Christmas!

Special Note: There is still uncertainty on when some economic reports will be released. For example, we are still missing housing starts and new home sales for September, October and November.

The key economic report this week is Q3 GDP.

----- Monday, December 22nd -----
8:30 AM: Chicago Fed National Activity Index for November. This is a composite index of other data.

----- Tuesday, December 23rd -----
8:30 AM: Durable Goods Orders for November.  The consensus is for a 0.4% increase.

8:30 AM: Gross Domestic Product, 3rd Quarter 2025 (Initial Estimate) and Corporate Profits (Preliminary). The consensus is that real GDP increased 3.2% annualized in Q3, down from 3.8% in Q2.

9:15 AM: The Fed will release Industrial Production and Capacity Utilization for October.

This graph shows industrial production since 1967.

The consensus is for a 0.1% increase in Industrial Production, and for Capacity Utilization to be unchanged at 75.9%.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for December.

----- Wednesday, December 24th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 225,000 initial claims, up from 224,000 last week.

The NYSE and the NASDAQ will close early at 1:00 PM ET.

----- Thursday, December 25th -----
All US markets will be closed in observance of the Christmas Holiday.

----- Friday, December 26th -----
No major economic releases scheduled.

by Calculated Risk on 12/19/2025 03:28:00 PM

Today, in the CalculatedRisk Real Estate Newsletter: Lawler: Another Strange NAR Reading on Northeast Median Sales Prices

Excerpt:

While today’s existing homes sales report from the National Association of Realtors didn’t contain many surprises, an exception was in the reported median existing home sales prices. The NAR report showed that the median existing home sales price (total and single-family) in November was up just 1.2% from a year earlier, well below both consensus and what local realtor/MLS data would have suggested. The source of this surprise was in the Northeast, where the NAR’s median existing home sales price estimate was up just 1.1% from last November, and the median existing single-family home sales price estimate was up only 0.9% YOY. Such an anemic gain was completely inconsistent with state realtor data from the Northeast, as the table below shows.

There is much more in the article.

by Calculated Risk on 12/19/2025 11:03:00 AM

Today, in the CalculatedRisk Real Estate Newsletter: NAR: Existing-Home Sales Increased to 4.13 million SAAR in November

Excerpt:

The fourth graph shows existing home sales by month for 2024 and 2025.

Sales were down 1.0% year-over-year compared to November 2024. The last month of 2025 will have a difficult year-over-year comparison.
...
Year-to-date, sales are down 0.5% compared to last year - and 2024 was the lowest level of sales since 1995! Sales this year will be close to last year.

Will this be the lowest level of sales in 30 years? Maybe. But there was one more working day in December this year compared to last year, so sales in 2025 might beat 2024.

There is much more in the article.

by Calculated Risk on 12/19/2025 10:00:00 AM

From the NAR: NAR Existing-Home Sales Report Shows 0.5% Increase in November

Month-over-month

• 0.5% increase in existing-home sales – seasonally adjusted annual rate of 4.13 million in November

• 5.9% decrease in unsold inventory – 1.43 million units equal to 4.2 months' supply

Year-over-year

• 1.0% decrease in existing-home sales

• 1.2% increase in median existing-home sales price to $409,200
emphasis added

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1994.

Sales in November (4.13 million SAAR) were up 0.5% from the previous month and were down 1.0% compared to the November 2024 sales rate.  

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 1.43 million in November from 1.52 million the previous month.

Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory was up 7.5% year-over-year (blue) in November compared to November 2024.

Months of supply (red) decreased to 4.2 months in November from 4.4 months the previous month.

I'll have more later. 

by Calculated Risk on 12/19/2025 07:59:00 AM

Hotel occupancy was weak over the summer months, due to less international tourism.  The fall months are mostly domestic travel and occupancy is still under pressure! 

From STR: U.S. hotel results for week ending 13 December

The U.S. hotel industry reported mixed year-over-year comparisons, according to CoStar’s latest data through 13 December. ...

7-13 December 2025 (percentage change from comparable week in 2024):

• Occupancy: 58.6% (-1.6%)
• Average daily rate (ADR): US$156.46 (+0.4%)
• Revenue per available room (RevPAR): US$91.76 (-1.1%)
emphasis added

The following graph shows the seasonal pattern for the hotel occupancy rate using the four-week average.

Click on graph for larger image.

The red line is for 2025, blue is the median, and dashed light blue is for 2024.  Dashed black is for 2018, the record year for hotel occupancy. 

The 4-week average of the occupancy rate is tracking well behind last year but is close to the median rate for the period 2000 through 2024 (Blue).

Note: Y-axis doesn't start at zero to better show the seasonal change.

The 4-week average will decrease seasonally until early next year.

On a year-to-date basis, the only worse years for occupancy over the last 25 years were pandemic or recession years.

by Calculated Risk on 12/18/2025 08:01:00 PM

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

Friday:
• At 10:00 AM ET, Existing Home Sales for November from the National Association of Realtors (NAR). The consensus is for 4.15 million SAAR, up from 4.10 million.

• Also at 10:00 AM, University of Michigan's Consumer sentiment index (Final for December).

by Calculated Risk on 12/18/2025 04:01:00 PM

The Cleveland Fed released the median CPI and the trimmed-mean CPI.

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.1% in November. The 16% trimmed-mean Consumer Price Index increased 0.1%. "The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics’ (BLS) monthly CPI report".

Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. 

On a year-over-year basis, the median CPI rose 3.1% (down from 3.5% YoY in September), the trimmed-mean CPI rose 2.9% (down from 3.3%), and the CPI less food and energy rose 3.0% (down from 3.2%). 

Core PCE is for September was up 2.8% YoY, down from 2.9% in August.  

by Calculated Risk on 12/18/2025 12:45:00 PM

At the end of each year, I post Ten Economic Questions for the following year (2025). I followed up with a brief post on each question. Here is review (we don't have all data yet - and some data is still delayed due to the government shutdown).  I've linked to my posts from the beginning of the year, with a brief excerpt and a few comments.

I don't have a crystal ball, but I think it helps to outline what I think will happen - and understand - and change my mind, when the outlook is wrong.  As an example, when the pandemic hit, I switched from being mostly positive on the economy to calling a recession in early March 2020.

Here were my questions for 2025 (posted in December 2024).  The analysis for the housing related questions were posted in the newsletter, and the other questions on this blog.

10) Question #10 for 2025: Will inventory increase further in 2025?

"“Time” will likely lead to more new listings in 2025. Mortgage rates will remain well above the pandemic lows, and new listings will likely be depressed again in 2025 compared to pre-pandemic levels.

The bottom line is inventory will probably increase year-over-year in 2025. However, it still seems unlikely that inventory will be back up to the 2019 levels."

This was correct on all points.

Here is a graph from Altos Research showing active single-family inventory through December 12, 2025.

The red line is for 2025.  The black line is for 2019.  Note that inventory is up 14% compared to the same week last year.

However, inventory is still below pre-pandemic normal levels. 

9) Question #9 for 2025: What will happen with house prices in 2025?

"I don’t expect national inventory to reach 2019 levels but much of the remaining gap between 2019 and 2024 levels will likely close in 2025. If existing home sales remain fairly sluggish, we might see national months-of-supply above 5 months in mid-2025.

That would likely lead to mostly flat prices nationally in 2025. However, I expect some areas - with higher months-of-supply - will see price decline in 2025."

This was correct.

As of September, the National Case-Shiller index SA was up 1.3% year-over-year. (Case-Shiller for October will be released December 30th).

The FHFA index was up 1.7% YoY in September, and the Freddie Mac index was up 1.0% in October.

 The ICE HPI was up 0.8% in November.

Mostly flat prices year-over-year and no crash or surge in house prices in 2025.  

8) Question #8 for 2025: How much will Residential investment change in 2025? How about housing starts and new home sales in 2025?

"My guess is multi-family starts will decline further in 2025, likely down 5% or so year-over-year (less than the previous 2 years). Single family starts will likely be mostly unchanged year-over-year, putting total starts down slightly.

I expect New Home sales to be up around 5% YoY."

NOTE: The most recent data is for August due to the government shutdown, so this is very uncertain.

This graph shows single and multi-family housing starts since 2000.

As of August, single family starts were down 4.9% year-to-date (YTD) compared to the same period in 2023.  Single family starts were a little weaker than expected.

Multi-family starts were up 17.5% YTD (much stronger than expected).

Total starts were up 0.7% YTD.

The next graph shows new home sales as of August (Sales reports for September, October and November have not been scheduled yet).

New home sales were down 1.4% YTD through August. 

This is still very unclear.  

I expect multifamily starts to be weaker later in the year (rents remain under pressure, and architects have reported weak billings for multifamily for 40 consecutive months.

7) Question #7 for 2025: How much will wages increase in 2025?

"Clearly wage growth is slowing and I expect to see some further decreases in both the Average hourly earnings from the CES, and in the Atlanta Fed Wage Tracker.  My sense is nominal wages will increase close to mid-to-high 3% range YoY in 2025 according to the CES."

This was correct.

The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees from the Current Employment Statistics (CES).  

There was a huge increase at the beginning of the pandemic as lower paid employees were let go, and then the pandemic related spike reversed a year later.

Excluding the pandemic spike, wage growth peaked at 5.9% YoY in March 2022 and declined to 3.5% in November 2025.

6) Question #6 for 2025: What will the Fed Funds rate be in December 2025?

"With inflation still above target over the last 6 months, my guess is there will be 1 or 2 rate cuts in 2025."

There were 3 rate cuts in 2025 with the Fed Funds rate target range at 3-1/2 to 3-3/4 percent in December 20254. 

5) Question #5 for 2025: What will the YoY core inflation rate be in December 2025?

"In general, I'm ignoring policy changes ... tariffs could be implemented quickly and depending on the policy this could push up the inflation rate.

My guess is core PCE inflation (year-over-year) will decrease in 2025 (from the current 2.8%) but still be above the Fed's 2% target by Q4 2025."

This data has also been delayed.  

According to the September Personal Income and Outlays report released in early December, the September PCE price index increased 2.8 percent year-over-year, and the September PCE price index, excluding food and energy, increased 2.8 percent year-over-year. 

4) Question #4 for 2025: What will the participation rate be in December 2025?

"Since almost all of the workers impacted by the pandemic have returned to the labor force, demographics will be the key driver of the participation rate in 2025 (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 to around 62.2% in December 2025."

The Labor Force Participation Rate was at 62.5% in November.

The participation rate dipped to 62.2% in July, but bounced back some at the end of the year.

This is down from the post pandemic peak of 62.8%.

The decline from demographics (retiring baby boomers) is now pushing down the rate, however, not as much as I expected.

3) Question #3 for 2025: What will the unemployment rate be in December 2025?

"My guess is the unemployment rate will decline to 4% or so by December 2025.  (Lower than the FOMC forecast of 4.2% to 4.5%)."

The unemployment rate was at 4.6% in November (the FOMC beat me on this one!).  Policy has been more negative for unemployment than I expected.

2) Question #2 for 2025: How much will job growth slow in 2025? Or will the economy lose jobs?

"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)."

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

Through November the economy has added 610 thousand jobs in 2025, well below my guess.

Policy has been negative for employment in 2025.

1) Question #1 for 2025: How much will the economy grow in 2025? Will there be a recession in 2025?

"Looking at 2025, a recession is mostly off the table. ... 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 2025.  So, my guess is that real annual GDP growth will be less than most expect, perhaps around 1.5% in 2025."

We still do not have the GDP release for Q3.

I was correct about no recession, but growth will likely be closer to 2.0% or so in 2025.

For the most part, the economy evolved as expected in 2025. Policy impacted employment and unemployment more than I expected.