BCA Research warns that betting on U.S. housing driving economic growth in 2026 is premature. Despite recent mortgage rate drops, the residential market remains weak, acting as a mild GDP drag rather than a growth engine. Construction pipelines show no momentum, with housing starts hitting a five-year low in October 2025 and permits flat for three years.

Home sales activity is similarly lackluster, with pending sales slumping despite December's existing home sales jump. The affordability crisis is the primary culprit, with first-time buyer mortgage payments hovering near 1980s highs due to a gap between contracted rates and current market rates, making house-buying conditions 'very poor.' Real prices have fallen over the past year, with limited scope for gains. Supply is mixed: low homeowner vacancies suggest no glut, but new homes for sale hit a 16-year high. Multifamily vacancies rose briskly, exceeding pre-pandemic levels.

Policy efforts like Trump's $200 billion Fannie/Freddie MBS purchase face limits, as the mortgage spread remains near historical averages. Immigration crackdowns could further constrain affordable construction, as immigrants make up a quarter of construction jobs. A slight bright spot exists in growing HELOCs, though off a low base, with rates falling from 10% to 7.3% in 2026. BCA concludes housing remains a problem child for the U.S. economy.