March 09, 2026 – The recent conflict in the Middle East adds a new layer of concerns to the softening economy and the recovering housing market. With payrolls falling sharply in February and consumer spending pulling back at the start of the year, there were hopes that mortgage rates could come down sooner. However, the surge in oil prices could keep rates high and push up stagflation risks if the war continues for a long period of time. Housing sentiment, while appears to be quite positive a few weeks ago, could deteriorate in the weeks ahead if the geopolitical issue is not resolved in the near term.  

U.S. payrolls fell sharply in February: The latest U.S. jobs report came in much lower than expected, with nonfarm payrolls shedding 92k jobs in February, sharply below the 50k jobs gained projected by economists. Almost one-third of the jobs lost last month were in the healthcare sector (-28k) and the loss was due primarily to the Kaiser Permanente strike which sidelined more than 30k workers. Other sectors that experienced job losses in February include the leisure and hospitality sector (-27k), the information sector (-11k), transportation and warehousing (-11k), construction (-11k), and the federal government (-10k). The unemployment rate ticked up slightly to 4.4% from 4.3% in January, while the labor participation rate dropped to 62% last month, the lowest level since December 2021. On a more positive note, wages increased more than expected, with average hourly earnings rising 3.8% year over year. With the monthly job growth fluctuating since April 2025, a bounce back in March is possible, but the overall picture will remain weak in the months ahead, especially if the Middle East conflict lingers on.   

Retail sales dip last month primarily due to decline in auto and gas stations: Consumer spending hit a rough patch in January, as retail sales declined 0.2% in the first month of 2026, according to the Commerce Department. On a year-over-year basis, January sales for retail and food services look more encouraging with a gain of 3.2% from 12 months ago. The monthly dip was due primarily to the drop in auto sales (-0.9%) and businesses at gas stations (-2.9%). In fact, sales excluding these categories posted a more upbeat figure of 0.3% increase month-over-month. Categories that improved from the prior month include home furnishing (0.7%), building materials (0.6%), and nonstore retailers (1.9%). Health and personal health stores were the worst performers, on the other hand, with sales falling 3% from December. Restaurants also declined 0.2%, which is not a good sign for services spending but may not warrant any immediate concern for now. With early tax filing data indicating a double-digit increase in tax refunds this year, more cash flow should help support spending in March and April, but the war in Iran could have an effect on consumer resilience, and the magnitude of the impact will depend on the duration of the war.     

Housing supply gap widens in 2025: Housing shortage remains an issue, with the gap between supply and demand expanding last year after improving in 2024. The deficit reached 4.03 million in 2025 and was the third highest since 2012, according to a recent study released by Realtor.com. The gap is measured using three components: new housing constructions, household formations, and pent-up housing demand. In 2025, construction activity (total housing starts) dipped slightly from the prior year to 1.36 million units, while household formations increased strongly to 1.4 million from 1 million in 2024. Meanwhile, pent-up housing demand – the additional households that would have been formed but were delayed due to economic constraints, supply restrictions, or other reasons – was estimated to reach 1.82 million in 2025. Adding together the new households being formed, the cumulative housing deficit continued to widen last year, even when new units delivered to the market were somewhat on par with the new households being formed. At the regional level, the South recorded the largest gap at 1.62 million, while the West had the smallest at 0.67 million.  

Apartment rent ticks up as market pulls out of the off-season: The U.S. multifamily median rent had its first monthly increase in February since last July, according to the latest Apartment List National Rent Report. As the market pulled out of its off-season, the national median price inched up 0.2% month-over-month in February, turning positive for the first time in seven months. On a year-over-year basis, rent prices were still down 1.5% from a year ago and the median has been in negative territory for over two years. Meanwhile, the vacancy rate at the national level climbed up to 7.4% in February, reaching the highest level since 2017, as the surge of multifamily construction persisted for three straight years. While the delivery of new units is expected to pull back sharply in 2026, supply growth will remain above the long-run average this year. With more units coming onto the market, many of them have also been sitting vacant for a longer time. The list-to-lease time remained elevated at 40 days and was the longest in any February going back to 2019. With the job market weakening and the general economic conditions remaining uncertain, the rental market outlook for 2026 has become murkier since the start of the year. 

Americans feel more positive about the housing market, but high home prices remain an issue: With mortgage rates falling below 6% in late February, nearly two-thirds of Americans (62%) were aware of the decline below the threshold and three out of five (59%) felt more optimistic about the housing market, according to a new survey released by HomeServe. Half of the respondents (48%), in fact, said that lower mortgage rates made them more likely to consider buying a home in the next 12 months. However, three out of five (61%) also said home price being too high was their biggest barrier to buying, followed by down payment savings (37%), job/income concerns (34%), and inventory challenges (33%). With geopolitical tensions remaining elevated though, housing sentiment will likely ease in the short term as the conflict in the Middle East continues.

Note: This summary report gets updated every Monday by 6:00 pm PST. Feel free to email us at [email protected] if you have any questions and/or feedback.

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