Introduction to the Current State of the Economy
The newest Consumer Price Index (CPI) data reveals that the effects of President Trump’s tariffs are beginning to manifest in the economy. Over the past year, the all-items index rose by 2.7 percent before seasonal adjustment, according to the June figures from the U.S. Bureau of Labor Statistics. This marks a 0.3 percent increase from the previous month’s 2.4 percent, moving further away from the Fed’s goal of 2 percent, although it remains significantly lower than the peak of 9.1 percent achieved in the summer of 2022.
The Housing Market and Inflation
The shelter category of the CPI, which encompasses housing costs, continues to be a significant contributor to overall inflation. In June, shelter costs increased by 0.2 percent month-over-month and were once again the primary factor in the overall increase. Over the past 12 months, shelter costs have risen by 3.8 percent. Although home price growth may be slowing, Americans are still feeling the impact of the extreme housing cost increases of the past few years.
There’s no dismissing the fact that housing affordability continues to be a major pain point for Americans.
— Mark Hamrick, Bankrate Senior Economic Analyst
Mark Hamrick, Bankrate’s senior economic analyst, notes, "Shelter continues to be a contributor to the rise in the main gauge of prices at the retail level. 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."
Lawrence Yun, chief economist for the National Association of Realtors (NAR), recently stated, "The jumbo heavyweight of inflation is housing costs. 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."
The jumbo heavyweight of inflation is housing costs.
— Lawrence Yun, Chief Economist, National Association of Realtors
Nationally, Cotality’s most recent home price analysis reports that prices rose by 1.8 percent from May 2024 to May 2025. It forecasts that price growth will continue, with an expected increase of 4.2 percent by May 2026. Selma Hepp, Cotality’s chief economist, said, "While prices were up from a year ago, the rate of gain is slipping as rising ownership costs and increasing inventory are pulling prices down in many markets. The share of markets posting annual decreases in the home price index has steadily increased this year, reaching 19 percent in May, a share not seen since 2012."
What It Means for Buyers and Sellers
Among these mixed signals, the question arises: should you buy a home now, or wait? What about selling your home now?
For Homebuyers
Housing inventory, while improving, 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, which is below the 5 to 6 months needed for a balanced market. May’s supply of new construction single-family homes was a different story, nearing 10 months, according to 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 marking the 23rd consecutive month of annual growth. It’s okay to wait instead of buying now to avoid further price 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 potentially grows.
Even when inflation does come down on a consistent basis, it doesn’t mean prices falling; it just means prices not rising as fast.
— Greg McBride, Bankrate Chief Financial Analyst
Greg McBride, Bankrate’s chief financial analyst, advises, "Even when inflation does come down on a consistent basis, it doesn’t mean prices falling; it just means prices not rising as fast. 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."
For Home Sellers
The continued growth in home prices 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. Location matters, as not every location is experiencing the same level of price growth.
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 to take advantage of higher interest rates.
- Consider a mortgage lender with low or no fees to save on origination costs.
- Lock in your mortgage rate when you find a lender and apply for a loan to avoid sudden increases in your monthly mortgage payment.
Conclusion
The current state of the economy, particularly the housing market, presents both challenges and opportunities for buyers and sellers. Understanding the impact of inflation, housing costs, and market trends is crucial for making informed decisions. Whether you’re considering buying or selling a home, it’s essential to weigh your options carefully and potentially wait for more favorable market conditions. By doing so, you can make the most of your investment and navigate the complex housing market with confidence.
