The U.S. economy grew at a surprisingly robust 4.3% annual rate in the third quarter of 2025, defying economist expectations and signaling continued resilience.

However, beneath the strong topline numbers from the Bureau of Economic Analysis (BEA), which were published today, the housing sector has retreated further, acting as a notable drag on an otherwise expanding economy.

“Housing actually took a step back,” Odeta Kushi, vice president and deputy chief economist at First American Financial Corporation, wrote in a LinkedIn post covering the BEA data.

“Housing’s combined footprint (housing services [plus] residential fixed investment) fell to 16.1% of GDP, the lowest share since Q2 2023,” she continued.

The BEA’s initial estimate places real GDP growth well above consensus forecasts, driven by strength in non-housing sectors. Yet, the data reveals that housing is decoupling from this growth.

Residential Fixed Investment (RFI), which includes new construction, remodeling and brokers’ fees, ticked down to 3.8% of GDP in the third quarter of 2025, from 3.9% the quarter before.

Similarly, housing services — which account for gross rents, utilities and owners’ imputed rent — slipped to 12.3% of GDP, down from 12.4% in the second quarter.

The sale of an existing home is considered a transfer of assets and therefore does not itself count toward GDP. Instead, GDP captures the economic activity that surrounds housing: new construction, remodeling and transaction-related services such as commissions for brokers.

Builders are incentivized to prioritize selling existing inventory rather than breaking ground on new projects, limiting construction’s contribution to GDP growth.

While the immediate picture for residential investment remains constrained, the sector may be nearing a turning point. Lower interest rates and gradually improving affordability could set the stage for a recovery.

Kushi projects that these improving conditions “may support a return to modest growth in 2026.”