The Consumer Price Index (CPI) eased modestly in August, according to the latest figures from the U.S. Bureau of Labor Statistics, released Sept. 11. The all-items index increased 2.5 percent over the past year before seasonal adjustment, compared with July’s 12-month jump of 2.9 percent.

Inflation is substantially lower now than at its high point of 9.1 percent in the summer of 2022, though it’s still higher than the Federal Reserve’s stated goal of 2 percent.  “On a year-over-year basis, the headline gain slips to 2.5 percent, while the core remains at 3.2 percent. These are the lowest since early 2021,” says Mark Hamrick, Bankrate’s senior economic analyst. “At the same time, wages have been rising above the pace of inflation for more than a year, meaning that purchasing power broadly is slowly being restored.”

Wages have been rising above the pace of inflation for more than a year, meaning that purchasing power is slowly being restored. — Mark Hamrick, Bankrate Senior Economic Analyst

Economists widely expect the Fed to cut rates at its next meeting on Sept. 18. “The Federal Reserve will likely cut its benchmark rate by one-quarter of a percent next week, still at a restrictive level,” says Hamrick. A cut of 0.25 percent would represent a cautionary step, as opposed to the larger cut some might hope for.

“Too drastic of a drop could re-trigger inflation in the housing sector, as mortgage rates would drop considerably with a 50-basis-point cut, leading to desperate home-seekers once again bidding up the price of housing,” says Ken Johnson, chair of the real estate program at the University of Mississippi. “The Fed is cognizant of this possibility and will therefore drop the interbank rate 25 versus 50 basis points.”

The housing market and inflation

The shelter category of the CPI, which includes housing costs, remains a stubbornly large contributor to inflation overall. In August, shelter increased 0.5 percent month-over-month and 5.2 percent from last year, making it the primary factor in the all-items index’s increase.

Nationally, CoreLogic’s most recent home-price analysis reports that home prices rose 4.7 percent from June 2023 to June 2024. It forecasts that price growth will continue, albeit more slowly, with an increase of 2.3 percent by June 2025. “Housing market activity essentially froze at the end of the spring homebuying season, as high mortgage rates continued to compress affordability and dissuade potential homebuyers,” said Selma Hepp, CoreLogic’s chief economist, in a statement. “In addition, cooling home prices continued to spread across more markets, and nine states reported a monthly decline, up from three states last month.”

Meanwhile, Fannie Mae’s latest Home Purchase Sentiment Index (HPSI) increased slightly in August to 72.1, with a survey-high 39 percent of respondents saying they expect mortgage rates to decline in the next 12 months.

Lawrence Yun, chief economist of the National Association of Realtors (NAR), foresees things calming down by end-of-year: “Mortgage rates will be bouncy week-to-week but will most likely settle toward 6 percent by the year end,” he said in a recent statement.

“A big wildcard this year involves the questions associated with what happens with mortgage rates and the supply of homes for sale,” says Hamrick. “If we see a continued and more substantial drop in mortgage rates, that could in turn compel more current owners to move, putting their homes on the market. Ultimately, that could ease some of the upward pressure on home prices, which would undo some of the damage inflicted on housing affordability over the past several years.”

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, remains a problem for potential buyers across the country. According to the most recent existing home sales data from NAR, the country had a 4.0-month supply of inventory in July — still below the 5 to 6 months needed for a balanced market.

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. — Greg McBride, Bankrate Chief Financial Analyst

“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, CFA, 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 ongoing housing shortage may provide an opportunity for sellers to get a better 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. The nationwide median home-sale price was $422,600 in July, up 4.2 percent year-over-year and a record high for July, according to NAR. Still, prices vary from one area to the next. So, depending on where you live, the local market could be cooler.

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 price 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.