The Housing Market And Inflation

New Consumer Price Index (CPI) data suggests that the impact of President Trump’s tariffs is starting to be felt in the economy. Over the past year, the all items index increased 2.7 percent before seasonal adjustment, according to June’s figures from the U.S. Bureau of Labor Statistics, released July 15. This is a 0.3 percent increase from last month’s 2.4 percent, edging farther away from the Fed’s stated goal of 2 percent — however, it’s still significantly lower than the high point of 9.1 percent in the summer of 2022.

In response to slowing inflation and weakening jobs data, the Federal Reserve cut rates at its final three meetings of 2024 — by half a percentage point in September and another quarter point in both November and December — but has held steady in all its 2025 meetings so far. The next meeting takes place July 29–30.

The housing market and inflation

The shelter category of the CPI, which includes housing costs, remains a stubbornly large contributor to inflation overall. In June, shelter increased 0.2 percent month-over-month and was once again the primary factor in the overall increase. It has increased 3.8 percent in the past 12 months. While home-price growth may be slowing, Americans are still reeling from the extreme housing cost run-up of the past few years.

“Shelter continues to be a contributor to the rise in the main gauge of prices at the retail level,” says Mark Hamrick, Bankrate’s senior economic analyst. “There is reason for optimism on this front if home-price gains moderate as expected. But having said that, there’s no dismissing the fact that housing affordability continues to be a major pain point for Americans.”

“The jumbo heavyweight of inflation is housing costs,” said Lawrence Yun, chief economist for the National Association of Realtors (NAR), in a recent statement. “Getting shelter costs under control with more housing supply will be the key to getting overall inflation fully tamed and for the Federal Reserve to ‘normalize.’ Fed rate cuts with high inflation will not result in lower mortgage rates. However, rate cuts because of falling inflation will mean meaningfully lower mortgage rates.”

Nationally, Cotality’s most recent home-price analysis reports that prices rose 1.8 percent from May 2024 to May 2025. It forecasts that price growth will continue, with an increase of 4.2 percent by May 2026. “While prices were up from a year ago, the rate of gain is slipping as rising ownership costs and increasing inventory is pulling prices down in many markets,” said Cotality chief economist Selma Hepp in a statement. “The share of markets posting annual decreases in the home price index has steadily increased this year. It reached 19 percent in May, a share not seen since 2012.”

Fannie Mae’s Home Purchase Sentiment Index (HPSI), meanwhile, rose by 3.7 points in June to 69.8. The survey found that 71 percent of consumers said that now is a bad time to buy a home.

What it means for buyers and sellers

Among these decidedly mixed signals, should you buy a home now, or wait? What about selling your home now?

For homebuyers

Housing inventory, while improving significantly, remains tight for potential buyers across the country. According to the most recent existing-home sales data from NAR, the country had a 4.6-month supply of inventory in May, not bad but still below the 5 to 6 months needed for a balanced market. May’s supply of new construction single-family homes was a different story though, nearing 10 months, according HUD and the Census Bureau.

In addition, home prices continue to rise, with NAR’s median existing-home sale price in May at $422,800, up 1.3 percent year-over-year and the 23rd consecutive month of annual growth.

It’s OK to wait things out instead of buying now to beat further increases, especially if you’re a first-time homebuyer. While you’d be putting off building equity, you might find you’re in a better position to buy in the future, as the market cools and your income can potentially grow.

“Even when inflation does come down on a consistent basis, it doesn’t mean prices falling; it just means prices not rising as fast,” says Greg McBride, Bankrate’s chief financial analyst. “For homebuyers, a more modest pace of appreciation, or even a period of stagnant home prices, can allow for incomes to grow further. Rather than stretching too much now, you may be able to buy a bit more comfortably in a couple of years if your income growth outpaces home price growth. But there are no guarantees.”

That said, life circumstances might require you to buy a home now, regardless of market trends, and that’s as good a reason as any. Just make sure you plan to stay in the home for long enough to come out ahead when you eventually sell.

For home sellers

The continued growth in home prices, ever upward, may provide an opportunity for sellers to get an appealing price for their homes. This is good news, but keep in mind that if you then need to buy a new home, the tables will turn, and you’ll be subject to the same circumstances — and high mortgage rates — as other buyers.

And remember, location matters. While median sale prices overall are quite high, not every location is experiencing the same level of price growth. For example, according to NAR, the Northeast saw a 7.1 percent price increase in May while prices in the South actually decreased by 0.8 percent. So, depending on where you live, the local market could be cooler or hotter than average.

Homebuying tips when prices are high

If you’re set on buying soon, here are a few ways you can stretch your housing budget:

• Put your down payment savings in a high-yield account: One upside to inflation and the Fed’s many rate hikes: higher interest rates on savings accounts. If you aren’t already, put the money you’re saving toward a down payment into a high-yield account. Just make sure the account allows you to access your money easily when it comes time for closing — some online savings accounts take three days to deliver your funds when you withdraw.
• Consider a mortgage lender with low or no fees: While it might be more convenient to get a mortgage at your bank, banks typically charge an origination fee, often 1 percent of the amount you borrow. Many non-bank and online lenders don’t, so if you can find a no-fee lender with attractive rates, you’ll keep more money in your pocket.
• Lock in your mortgage rate: When you find a lender and apply for a loan, ask about locking in your rate. Now’s not the time to take a chance on your monthly mortgage payment suddenly soaring in price, right before you’re set to close.

Additional reporting by Jim Probasco