Elevated valuations, slowing growth
In its Financial Stability Report published May 8, using information available as of April 23, 2026, the Federal Reserve said asset valuations generally "remained elevated" across markets, with equity valuations high, corporate bond and loan spreads low by historical standards, and Treasury term premiums up amid bouts of interest-rate volatility. On housing specifically, the report said that in residential real estate markets, "prices remained well above their historical relationship with fundamentals, even as house price growth has continued to slow." Commercial real estate prices and fundamentals showed continued signs of stabilizing, the Fed said, though it warned that the potential for distressed commercial property sales remains if CRE borrowers needing to refinance are unable to do so.
The report frames housing valuation as one of several asset markets it tracks for financial-stability purposes rather than as an imminent risk on its own; it did not project a price correction, only that current prices sit above what income and rent fundamentals would suggest, a gap that has persisted through much of the post-pandemic period.
Household debt looks different from corporate debt
The Fed's borrowing chapter found business and household debt relative to GDP at levels last seen in the early 2000s. But it drew a sharp distinction within household debt: mortgage delinquencies remained low by historical standards, and homeowners carried large equity cushions, even as delinquencies on auto loans and credit cards ran high. That split matters for how a housing downturn, if one occurred, would likely play out — homeowners with substantial equity have more room to sell, refinance or otherwise avoid default than homeowners with little equity, a dynamic very different from the run-up to the 2008 crisis.
On funding risks, the report noted that runnable, money-like liabilities across the financial system stood at roughly 86 percent of GDP at the end of 2025, and that some private credit vehicles had limited investor redemptions during the period — a sign of liquidity strain in parts of that market, though the report did not tie this specifically to mortgage or housing credit.
Why the Fed publishes this
The Financial Stability Report is published twice yearly and is meant to identify vulnerabilities rather than forecast prices; it explicitly separates valuation levels, which it studies for size and possible fragility, from predictions about future price paths. The elevated-valuation finding for housing has now appeared in consecutive editions of the report, suggesting the Fed sees the gap between prices and fundamentals as a structural feature of the current market rather than a fleeting anomaly tied to a single quarter's interest-rate movements.
Read alongside the mortgage-performance data reported later in the year — MBA's rising seriously delinquent rate and FHA's sharper deterioration — the May report's emphasis on "low by historical standards" delinquency for the mortgage book as a whole looks less reassuring by August, though the Fed's own equity-cushion point, that most homeowners have substantial buffers even where delinquency is rising, remains the operative distinction between a payment problem and a systemic housing-price problem.
The report's separate chapter on near-term risks draws on the Fed's periodic outreach to market participants, community groups and policymakers, described as the "Survey of Salient Risks to Financial Stability." More respondents in that spring outreach cited risks tied to geopolitical tensions, private credit and artificial intelligence than in the prior fall's survey, while fewer cited policy uncertainty; concerns about a successful cyberattack disrupting market functioning recurred across surveys, a persistent worry the report says commentators linked partly to the conflict in the Middle East. Housing valuation did not appear among the report's named near-term risk scenarios, which instead focused on cyber events, private credit stress and elevated asset valuations more broadly — reinforcing that the Fed treats the housing-price gap as a background vulnerability rather than a trigger event in its own right.