Fitch said the U.S. housing economy had shifted from stagnation to contraction by mid-2026, even as overall GDP still grew.
An 8% drop in residential investment contrasted with 2% quarterly GDP growth in early 2026, with Fitch saying AI-led business investment above 10% masked housing weakness.
Mortgage rates have stayed above 6.5% for 10 weeks after the Iran war began, while median existing-home prices hit a record in June and insurance and tax bills now make up 30% to 50% of typical payments.
Fitch said mortgage credit performance remains stable because delinquencies are still historically low, borrower equity is high, and about two-thirds of outstanding mortgages carry rates of 5% or less.
Consumer sentiment remains weak and inflation-adjusted income growth is stagnant or contracting, a combination Fitch sees as a growing risk to future housing demand.