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Housing’s Share of the Economy Falls Again as It Continues to Face Headwinds – Eye On

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Housing’s share of the economy was 15.7% in the third quarter of 2026, according to the latest estimates of GDP produced by the Bureau of Economic Analysis. This share is down from 15.8% in the second quarter and down from 16.0% a year ago. Residential construction, measured by residential fixed investment, fell for the sixth time over the past eight quarters.

The more cyclical home building and remodeling component–residential fixed investment (RFI)–was 3.6% of GDP, even with the previous quarter. The second component, housing services, was 12.2% of GDP, also even with the previous quarter. The graph below plots the share for housing services and RFI, along with housing’s total share of nominal GDP.

Housing service expenditures are much less volatile when compared to RFI due to the cyclical nature of RFI. Historically, RFI has averaged roughly 5% of GDP, while housing services have averaged between 12% and 13%, for a combined 17% to 18% of GDP. These shares tend to vary over the business cycle. However, the housing share of GDP lagged during the post-Great Recession period due to underbuilding, particularly in the single-family sector.

In the third quarter, RFI subtracted 12 basis points from the headline GDP growth rate. This reversed the 10 basis points that RFI added to GDP growth in the second quarter. RFI declined 3.3% in the third quarter on an annualized basis to a seasonally adjusted annual rate of $1.17 trillion, down from $1.18 trillion in the second quarter.

RFI can be split into two segments: structures and equipment. Residential structure investment not only consists of new single-family and multifamily units but also includes manufactured homes, improvements, and dormitories. Residential equipment, which accounts for under 2% of total RFI, consists of furniture or household appliances that are purchased by landlords for rental to tenants. Real private investment in structures fell 3.6%, while investment in residential equipment rose 9.9%.

Breaking down the components of residential structures, single-family RFI fell 5.0%, while multifamily RFI rose 0.3%. Permanent site structure RFI, which is made up of single-family and multifamily RFI, fell 3.8%. The “other structures” RFI category was down 3.4% in the third quarter. This component consists primarily of manufactured homes, improvements, and dormitories. On a seasonally adjusted annual basis in the third quarter, private investment in permanent site structures was at $514.9 billion, while other structures totaled $635.4 billion.

While RFI has declined over the past year, nonresidential fixed investment has grown substantially. In the third quarter, nonresidential fixed investment grew 12.7%, the seventh straight quarter of growth. Most of this investment is in nonresidential equipment, as it grew 20.9% in the third quarter. This was led by investment in information processing equipment, specifically computer equipment. Nonresidential structure investment rose 5.4% in the third quarter, led by commercial and health care structure investment. Notably, investment in manufacturing structures fell by double digits for the seventh straight quarter, with a decline of 15.3% on an annualized rate in the third quarter.

The second impact of housing on GDP is the measure of housing services. Similar to RFI, housing services consumption can be broken into two components. The first component, housing, includes gross rents paid by renters, owners’ imputed rent (an estimate of how much it would cost to rent owner-occupied units), rental value of farm dwellings, and group housing. The inclusion of owners’ imputed rent is necessary from a national income accounting approach, because without this measure, increases in homeownership would result in declines in GDP. The second component, household utilities, is composed of consumption expenditures on water supply, sanitation, electricity, and gas.

For the third quarter, housing services represented 12.2% of the economy or $4.0 trillion on a seasonally adjusted annual basis. Real housing services expenditure rose 2.8% at an annual rate in the third quarter. Real personal consumption expenditure for housing grew 1.1%, while real household utilities expenditures rose 15.3%.

Personal consumption expenditure (PCE) on housing services is the largest component of PCE, making up 18.0% in the third quarter. The second largest component of PCE is health care services, at 17.0%. Expenditure on services was $15.4 trillion on a seasonally adjusted annual basis in the third quarter, more than double the expenditure on goods ($6.9 trillion).



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Wood Framing Continues to Dominate Single-Family Construction – Eye On Housing

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Wood framing continues to dominate the U.S. single-family home construction market, according to NAHB analysis of 2025 Census Bureau data. In 2025, wood framing accounted for 94% of all completed single-family homes, maintaining its position as the leading construction method. Concrete-framed homes represented 5% of completions, while steel-framed homes remained relatively rare, comprising half a percent of the market.

On a count basis, approximately 947,000 wood-framed homes were completed in 2025. This was a 1% decrease compared to the 2024 total. Despite the decline in the number of wood-framed homes, the wood-framed market share remained unchanged at 94% in 2025. Steel-framed homes, while still uncommon, continued to increase. About 5,000 steel-framed homes were completed in 2025, representing a 25% increase from the previous year.

Meanwhile, concrete-framed homes also experienced a decline. The concrete market share remained at 5% in 2025, while the number of concrete-framed homes completed fell to approximately 53,000, a 4% decrease compared to the prior year. Non-wood-based framing methods are primarily concentrated in the South due to residential resiliency requirements. In 2025, concrete-framed homes made up 9% of all single-family home completions in the South. Additionally, about 60% of all steel-framed homes completed in 2025 were built in the South, highlighting the region’s distinct building trends.



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Private Residential Construction Spending Continues to Weaken – Eye On Housing

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Private residential construction spending fell further in July, marking its fourth consecutive monthly decline. According to the latest construction spending data from the U.S. Census Bureau, private residential construction spending stood at a seasonally adjusted annual rate (SAAR) of $859.0 billion in July, down 1.3% from the revised June estimate and down 7.3% from a year earlier.

The July decrease was driven entirely by the single-family construction, the only residential category to post a monthly decrease. Single-family construction spending fell 3.2%, consistent with the continued weakness in builder sentiment reflected in the NAHB/Wells Fargo Housing Market Index (HMI). On a yearly basis, single-family spending was down 6.5%.

Multifamily construction spending edged up by 0.2% from June but remained 0.9% below the previous year. Spending on improvement (remodeling) also saw a modest increase of 0.3% over the month but declined 10.2% over the year. The remodeling estimates, which had significant revisions in the June report, underwent further revisions in July. May’s monthly change was revised from a 0.4% decline to a 1.1% decline, while June’s initially reported a 0.1% increase was revised to a 0.8% decrease.

The NAHB construction spending index is shown in the graph below. The index illustrates how spending on single-family construction has slowed since early 2024, reflecting the impacts of elevated interest rates and ongoing uncertainty over building material tariffs. Multifamily construction spending growth has also slowed down after the peak in June 2023, with the index largely plateauing since late 2024.  In contrast, improvement spending has been on an upward trend since 2023, supported in part by the aging housing stock and sustained demand for renovation. However, the latest revision indicates that a slowdown could be happening in 2026.

Private nonresidential construction moved in the opposite direction, recording its fourth consecutive monthly increase. July’s spending rose 0.4% to a SAAR of $755.2 billion, although it remained 3.3% below the previous year. Data center construction, a subcategory within office construction, remained strong with spending increasing 6.2% month-over-month and 57.2% year-over-year. The share of data centers as a percentage of spending on office construction has now surpassed 60% in July 2026.



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Wage Growth for Residential Building Workers Continues to Cool – Eye On Housing

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Wage growth for residential building workers continued to lose momentum in the second quarter of 2026, reflecting softer housing construction activity and weaker labor demand. According to the latest data from the U.S. Bureau of Labor Statistics, both nominal and inflation-adjusted wages have weakened further, extending the cooling trend that emerged after the strong wage gains of the post-pandemic period.

In nominal terms, average hourly earnings (AHE) for residential building workers increased 1.0% year-over-year in June 2026, reaching $39.74 per hour. This represents a notable slowdown from the 9.4% peak recorded in mid-2024 and continues the broader cooling trend observed throughout 2025 and into 2026.

After accounting for inflation, real wages declined 2.4% year-over-year in June 2026 to $11.95 per hour. Real wage growth strengthened temporarily during parts of 2024, reaching a peak of 6.2%, but has since weakened as nominal wage growth has slowed and inflationary pressures have remained elevated.

Meanwhile, the number of open, and unfilled construction sector jobs increased in June. Continued strength in construction-related activity, including data center construction, is supporting demand for construction workers.

Despite the slowdown in wage growth, residential building workers’ wages remain competitive relative to other industries:

8.2% higher than the manufacturing sector ($36.74 per hour)

22.1% higher than the transportation and warehousing sector ($32.55 per hour)

5.4% lower than the mining and logging sector ($42.01 per hour)

Note:

Data used in this post relates to all employees in the residential building industry. This group includes both new single-family housing construction (excluding for-sale builders) and residential remodelers but does not include specialty trade contractors.



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Sawmill Output Slips as Capacity Continues to Decline – Eye On Housing

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U.S. sawmill production fell in the first quarter, the second consecutive quarter of lower output according to the Federal Reserve G.17 Industrial Production report. Sawmill output has remained largely flat since 2023, after increasing in the post-pandemic period. The utilization rate for sawmills and wood preservation industries was 71.8% on a four-quarter moving average, up from 71.2% in the fourth quarter of 2025.

The sawmill utilization rate, a measure of actual production relative to potential full production published quarterly by the Census Bureau, moved upward over 2025 as capacity for sawmills fell. Sawmill production, based on a four-quarter moving average, was 0.4% lower in the first quarter of 2026 compared to the fourth quarter but remained higher than a year ago by 1.7%. U.S. sawmills’ full production capacity, an estimation of what could have been produced if running at full production capability, was down 6.0% from a year ago.

Lumber prices rose slightly in the first quarter. Softwood lumber prices rose 6.1% during the quarter but were down 3.8% from a year ago. Hardwood lumber prices continued to increase, rising 1.0% in the first quarter. This was the ninth consecutive quarter of price increases in hardwood lumber.

Employment in sawmill and wood preservation industries continued to fall, dropping to roughly 82,800 workers in the first quarter. This marked the twelfth straight quarterly decline, bringing employment to its lowest level since 2010.



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Holding Pattern Continues for the Fed – Eye On Housing

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The Fed continued its current pause for rate reductions at the conclusion of the March meeting of the Federal Open Market Committee, the central bank’s monetary policy body. The Fed held the short-term federal funds rate at a top rate of 3.75%, the level set in December of last year. This marked the second policy pause since the Fed resumed easing in September of 2025.

Characterizing current economic conditions, the Fed stated that “uncertainty about the economic outlook remains elevated.” The central bank also noted that “the implications of developments in the Middle East for the U.S. economy are uncertain.” The March statement noted:

Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has been little changed in recent months. Inflation remains somewhat elevated.

Chair Powell noted during his press conference that activity in the housing sector remains “weak.” Despite elevated uncertainty, Chair Powell noted there is expectation of ongoing progress for inflation, describing policy as mildly restrictive.

The Fed’s statement noted the central bank will continue to consider risks associated with both sides of its dual mandate, to maintain maximum employment and stable prices.

There was only one dissenting vote (Miran), who voted for a quarter point cut. Governor Miran has previously made the argument for more dovish monetary policy due to limited tariff effects and an improving productivity outlook that would mute future inflation pressure.  During the press conference there was discussion about the uncertain scale effects from higher oil prices and the merit of looking through supply-side shocks that can have offsetting effects on inflation (higher) and growth (lower).

Chair Powell has one remaining meeting at the helm at the Fed. President Trump has nominated former Federal Reserve Governor Kevin Warsh as the next Chair of the Federal Reserve. Powell said today he will stay on as Chair pro tem until Warsh is confirmed. Powell has not made a decision regarding whether he will remain as a Governor after his term as Chair ends. Powell can remain a Governor until the end of January, 2028.

NAHB had forecasted two additional rate cuts for 2026, based on the expectation of modest easing of inflation and a cool labor market. However, consistent with market expectations, our forecast will reduce this to just one rate cut for 2026 due to higher inflation pressure related to headline issues, including increased oil prices due to the Iran war. A longer conflict will have a relatively greater impact on the delay for future Fed rate cuts.

While reductions for the federal funds rate do not have a direct effect on mortgage interest rates, which remain slightly above 6%, federal funds rate reductions do lower interest rates on builder and developer loans, helping the supply-side of the housing market. Supplying more housing and at lower cost is key to solving the ongoing housing affordability challenge. Lower financing costs are part of the overall solution.

Looking forward, the Fed’s outlook for the economy and monetary policy is mixed. Estimates from the central bank’s updated Summary of Economic Projections (SEP) indicate an improved economic growth outlook, with a 2.4% fourth quarter year-over-year growth rate for 2026 (revised up from 2.3% as projected in December) and 2.3% for 2027 (revised up from 2%).

The SEP estimates also reveal an expectation of a 4.4% unemployment rate in 2026 and higher expectation for inflation (core PCE) of 2.7%, revised higher from 2.4% in December. The revised SEP does not anticipate the economy reaching the Fed’s target inflation rate of 2% until 2028.

With respect to policy, the SEP outlook suggests one rate cut in 2026 and one final rate cut in 2027. The “dot plot” of individual responses suggests one member expecting four rate cuts in 2026.



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Affordability Posts Mild Gains in Second Half of 2025 but Crisis Continues – Eye On Housing

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Though new and existing homes remain largely unaffordable, the needle moved slightly in the right direction in the second half of 2025, according to the latest data from the National Association of Home Builders (NAHB)/Wells Fargo Cost of Housing Index (CHI). The CHI results from the fourth quarter of 2025 show that a family earning the nation’s median income of $104,200 needed 34% of its income to cover the mortgage payment on a median-priced new home. Low-income families, defined as those earning only 50% of median income, would have to spend 67% of their earnings to pay for the same new home.

In the last three quarters of 2025, the income share needed to buy a new home declined from 36% in the second quarter, to 35% in the third quarter and 34% in the final quarter of 2025. These figures indicate a slight improvement in affordability.

The same trend holds true for existing homes. A typical family would have to pay 37% of their income for a median-priced existing home in the second quarter, 36% in the third quarter and 34% in the final three months of 2025. A low-income family would need to pay 69% of their earnings to make the same mortgage payment on an existing home in the fourth quarter.

The U.S. data for the percentage of earnings needed to purchase a new home in the fourth quarter is based on a national median new home price of $405,300 and median income of $104,200. The fourth quarter median new home price is down 1.2% from $410,100 in the third quarter. The corresponding price for an existing home in the fourth quarter fell to $414,900, 2.8% down from $426,800 in the previous quarter. The average 30-year mortgage rate moved lower from 6.65% in the third quarter to 6.32% in the fourth quarter.

CHI is also available for 175 metropolitan areas, calculating the percentage of a family’s income needed to make the mortgage payment on an existing home based on the local median home price and median income in those markets.

In eight out of 175 markets in the fourth quarter, the typical family is severely cost-burdened (must pay more than 50% of their income on a median-priced existing home). In 69 other markets, such families are cost-burdened (need to pay between 31% and 50%). There are 98 markets where the CHI is 30% of earnings or lower.

The Top 5 Severely Cost-Burdened Markets

San Jose-Sunnyvale-Santa Clara, Calif., was the most severely cost-burdened market in the CHI, where 80% of a typical family’s income is needed to make a mortgage payment on an existing home. This was followed by:

Urban Honolulu, Hawaii (69%)

San Francisco-Oakland-Fremont, Calif. (63%)

San Diego-Chula Vista-Carlsbad, Calif. (62%)

Barnstable Town, Mass. (56%)

Miami-Fort Lauderdale-West Palm Beach, Fla. (56%)

Naples-Marco Island, Fla. (56%)

Low-income families would have to pay between 111% and 159% of their income in all seven of the above markets to cover a mortgage.

The Top 5 Least Cost-Burdened Markets

By contrast, many of the least cost-burdened markets were located in Illinois. In the top five least cost-burdened markets, typical families needed to spend just 16-18% of their income to pay for a mortgage on an existing home. These markets are:

Decatur, Ill. (16%)

Elmira, N.Y. (16%)

Springfield, Ill. (17%)

Peoria, Ill. (17%)

Davenport-Moline-Rock Island, Iowa-Ill. (18%)

Low-income families in these markets would have to pay between 32% and 36% of their income to cover the mortgage payment for a median-priced existing home.

Visit nahb.org/chi for tables and details.



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The Fed Pause Continues

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Reflecting most forecasters’ expectations for the June FOMC meeting, the Federal Reserve continued its post-2024 pause for federal funds rate cuts, retaining a target rate of 4.5% to 4.25%. The pause comes after a 100 basis point series of reductions in late 2024. Despite these cuts, mortgage rates have remained in the high 6% range. The Fed also held unchanged its ongoing quantitative tightening program, which is more strongly focused on balance sheet reduction for mortgage-backed securities (MBS).

The Fed reaffirmed its policy commitment to achieve maximum employment and reduce inflation to a two percent target rate. During the 2025 policy pause, the Fed remains data dependent in a “wait and see” mode for developments in areas like tariff policy. Chair Powell noted that we learn more about tariffs later this summer. NAHB’s forecast incorporates two rate cuts from the Fed for 2025, one in the third quarter and one in the fourth quarter.

The Fed noted that economic activity continues at a “solid pace,” however swings in imports affected the first quarter GDP data. The central bank also stated that the unemployment rate remains low and inflation remains “somewhat elevated.”

I would note that the primary driver of this elevated inflation is ongoing high rates of shelter inflation, which reflect significant, underlying increases for residential construction costs for the post-covid period. During his press conference, Chair Powell cited that the housing market suffers from both long-run and short-run issues, involving affordability and a [structural] housing shortage. In prior comments to Congress, Powell has noted that home builders face a perfect storm of challenges from both the demand- and supply-sides of the market.

The Federal Reserve also published an update for its Summary of Economic Projections (SEP). Compared to its prior March projections, the Fed reduced its 2025 GDP forecast from 1.7% to 1.4% (year-over-year rate from the fourth quarter). During his press conference, Chair Powell linked policy uncertainty as a complicating factor for economic growth. Additionally in the SEP, the Fed slightly increased its 2025 forecast for the unemployment rate in the fourth quarter from 4.4% to 4.5%.

The central bank also increased its core PCE inflation projection for the final quarter of the year from 2.8% to 3.1%. During his press conference, Chair Powell noted that economic forecasters cited tariff policy as a contributing factor for a higher than expected level of inflation for 2025. He specifically projected that a measurable amount of inflation will arrive to the economy this summer. There is some debate among economists whether tariffs would have just a one-time impact on the aggregate price level, which would not be inflation pressure felt over a sustained period of time, or would in fact be a factor increasing inflation as a series of price increases.

Looking forward to future monetary policy, the “dot plot” projections of the SEP leave the Fed forecasting two rate cuts in 2025, followed by just one reduction in 2026 and one more cut in 2027. This projection removes one rate cute from both 2026 and 2027 compared to the March dot plot, although the Fed continues to point to 3% as the long-run, terminal rate for the federal funds rate.

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Volatile Spring Selling Season Continues

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The Census estimate of new home sales posted an unexpected gain in April even as builders and consumers continue to deal with economic uncertainty, elevated interest rates and rising building material costs.

Sales of newly built, single-family homes in April increased 10.9% to a 743,000 seasonally adjusted annual rate from a downwardly revised March number, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales in April was up 3.3% compared to a year earlier.

The April new home sales figure may be revised as it runs counter to market commentary and the fact that builder sentiment moved markedly lower in May. A less volatile look at the market would be the year-to-date figures, which show new home sales are down 1.2% thus far in 2025 on elevated interest rates, ongoing policy uncertainty and rising construction costs.

Rising inventory in the resale market is likely to place pressure on both pricing and sales activity for home builders during the second half of the year. The April new home data reflects this as new home inventory is leveling off near a half million of residences marketed for sale, up just 1.6% from January.

In April, new home inventory totaled 504,000 residences marketed for sale. While this is 8.6% higher than a year ago, it is only 1.6% higher from January. At the current sales pace, the months’ supply for new home stands at 8.1 compared to 7.7 a year ago.

To further illustrate the challenges builders are facing during the spring home buying season, 61% of home builders are using various kinds of sales incentives, including mortgage rate buydowns, to facilitate sales due to lackluster demand.

A new home sale occurs when a sales contract is signed, or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the April reading of 743,000 units is the number of homes that would sell if this pace continued for the next 12 months. This estimate may be revised lower next month.

Further, when accounting for existing, single-family home sales (a market which is showing rising inventory levels), total home inventory (new plus existing homes) is at a 4.8 months’ supply as of April. This is up from 4.6 from March and up from 4.1 from a year ago. The current reading is the highest since late 2015. Prior analysis indicates that the market will face notable inventory impacts on production as this measure approaches 5.5.

The median new home sale price in April was $407,200, compared to $415,300 a year ago.

Regionally, on a year-to-date basis, new home sales are down 32.5% in the Northeast, 14.8% in the Midwest and 2.4% in the West. Sales are up 5.7% in the South.

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Refinancing Continues to Drive Mortgage Activity in March

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The Market Composite Index, which measures mortgage loan application volume based on the Mortgage Bankers Association (MBA) weekly survey, rose 14.0% month-over-month on a seasonally adjusted (SA) basis, driven primarily by a surge in refinancing activity. Year-over-year, the index is up 29.2% compared to March 2024.

The Purchase Index rebounded 8.3% (SA) from the previous month as mortgage rates declined. Meanwhile, the Refinance Index surged 22.2% (SA), continuing its strong upward trend. Compared to a year ago, purchase applications are up 7.6%, while refinance activity has jumped 72.9%.

Economic uncertainty continues to drive treasury yield volatility, impacting mortgage rates. In March, the average 30-year fixed-rate mortgage reported in the MBA survey fell 17 basis points (bps) to 6.7%, marking a 23 bps decline from a year ago.

Loan sizes have continued to rise since the start of the year. In March, the average loan size across the total market (including purchases and refinances) increased 3.5% month-over-month (NSA) to $403,300. For purchase loans, the average size edged up 0.9% to $450,000, while refinance loans saw a sharper increase of 10.4%, reaching $337,500. Meanwhile, the average loan size for adjustable-rate mortgages (ARMs) rose slightly by 1.1%, from $1.13 million to $1.14 million.

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