Data Dig : Home Prices, Inflation, and a Housing Affordability Reality Check

With July now facing the downhill side of its 31-day life, several monthly economic and housing data reports are available. The reports have led to inappropriate optimism, we believe, of the state of home purchase affordability.

But, First, a Brief Thank You

To all of our readers who have subscribed to and shared Shovel To Keys, our gratitude. We receive no greater reward or satisfaction than your confidence to read our analysis and ideas and to share our work with others. Now, into the data …

Existing Home Sales from the NAR

We wrote last week about the existing home sales report from the National Association of Realtors. Inflation data and misguided commentary on housing affordability brought our attention back to the report.

Our attention returned to these existing home sales data partly because the current sales volume of roughly 4,000,000 homes annually is historically low and occurred in the past only during times of severe economic disruption (shown in the chart above, which depicts existing home sales volume from 1980 to the present):

• Since December 2022 (roughly the end of the Covid pandemic home buying frenzy), the monthly seasonally adjusted existing home sales count has averaged 3,995,000.
• Excluding the pandemic home sales trough anomaly in the first half of 2020, existing home sales last hovered around 4,000,000 from January 2008 to June 2012 (the aftermath of the Great Financial Crisis) and averaged 5,248,000 from July 2012 to February 2020 (just before the pandemic paralyzed the country).
• Before January 2008, the existing home sales count last fell to around 4,000,000 in October 1996. Nostalgia of this sort is no more enjoyable than the music of the late 1990s.

The current pace of existing home sales is a thirty-year low, excluding the impact of two events (the GFC and Covid) we unanimously would label as enormously disruptive to the economy. The historical context seems to teach that some substantial disruption has come to the housing market. The steep climb in home prices during the pandemic and the sharp increase in interest rates after the pandemic seem to have combined to create a critical disruption in housing at least as significant and possibly more endemic than either the GFC or the Covid pandemic.

The solution to home sales stagnation logically would be a decline in one or both of home prices or interest rates. As we have written, lower interest mortgage rates are likely a distant possibility, and if inflation persists, a Federal Reserve rate hike is possible. The Trump administration seems committed to such a result. The 30-year mortgage rate is near a one-year high at 6.68%.

A decline in home prices is even less likely. Weak existing home sales volume is the only extant downward influence on home prices, but many sellers seem content to await a more favorable selling environment, as shown by the stubbornly low inventory of homes for sale.

Even with interest rates in their current range and home prices rising slowly, home purchase affordability could improve if prospective buyers enjoyed real wage growth. Inflation well above the Federal Reserve 2% target and continuing tomfoolery in the Middle East stand as formidable obstacles to real wage improvement, as we discuss in more detail below.

Inflation

In early April 2026, the United States and Iran purportedly agreed to a two-week ceasefire to allow time for negotiation of a more durable agreement. The two weeks time-dilated into roughly three months. Through the end of May, gasoline prices remained a dollar or more above the pre-conflict level. The Consumer Price Index, the Producer Price Index, and the Personal Consumption Expenditures Index reflected the sharply higher cost of fuel.

The early days of the ceasefire brought no relief to drivers of fossil fuel powered vehicles. Fuel prices even rose in early May when the United States throttled the export of oil by Iran. By late May, presidential proclamations of agreement with Iran regarding the Strait of Hormuz fueled optimism that peace would endure and ease the bottleneck in the Strait. Prices at the pump felt the hype and declined noticeably.

The June Consumer Price Index

The June Consumer Price Index predictably dropped substantially from May in near lock-step with the decline in the price per gallon of gasoline and diesel.

• The CPI for all items in June was 3.5%, lower by 70 basis points from May’s 4.2%.

  • All energy prices dropped 5.7% from May.
  • Gasoline was down 9.7% from May.

• But, the month-to-month decline did not erase all or even most of the energy inflation caused by the Iran war.

  • Year-over-year, energy prices were 15.7% higher than June 2025.
  • Gasoline was up 26.7%.

• Shelter costs also rose in June, albeit at the slowest pace (0.1%) all year.

The June Producer Price Index

As with the CPI, the optimism (albeit unwarranted) for a long-term subsidence in conflict between the U.S. and Iran drove down “prices for final demand energy” by 6.4% attributable largely to a 12% decline in gasoline prices, according to the Bureau of Labor Statistics. The one month easing of wholesale inflation was welcome but masked a 5.5% year-over-year rise in the Producer Price Index. Upward price pressure in the creation of goods and services at such a high level almost certainly will appear in the CPI, even if oil prices come down in the near future.

Renewed Iran Warring Likely Will Reverse the Easing of Inflation

None of these CPI and PPI data reflect the renewed hostility between the United States and Iran, which likely will spin by 180 degrees the direction of gasoline and diesel prices in the second half of July.

June’s Inflation Respite Does Not Signal Better Housing Affordability

Despite the pace of inflation at 150 basis points above the Federal Reserve Bank’s 2.0% target and wholesale inflation at 350 basis points above the target, one leading housing economist touted an improvement in housing affordability:

“The median home price has reached an all-time high. Even so, affordability is better than a year ago because wage growth is outpacing home price growth,” stated Lawrence Yun, Chief Economist at the NAR.

The assertion is confounding. Real wages (inflation-adjusted wages) improved from May to June by a meager 0.1% almost entirely because fossil fuel costs declined. Measured over a more useful timeframe, however, real wages have remained essentially flat.

• From March through June, real wages (i.e., consumer buying power) declined 0.3%.
• Over the year ending June 30, 2026, real wages rose just 0.1%, essentially keeping pace with “all items” inflation.

Comparing wage growth only to home price growth misconstrues consumer reality. A household on a finite income has a fixed pool of dollars to spend. Even if housing costs rise more slowly than wages, large increases in other household expenses, such as gasoline, deplete the fixed pool of dollars. The depletion impacts the household’s capacity to spend on housing just as much as an increase in the cost for housing or clothes or healthcare. For so long as “all items” inflation matches wage growth, housing affordability will not improve regardless of whether the corrosive effect of inflation comes from gasoline, housing, or any other household expense.

Contrary to the NAR optimism, the current combination of stagnant real wages and consistently rising existing home prices does not suggest an improvement in housing purchase affordability. The $446,400 median price reported by the NAR for June 2026 is a new record in nominal dollar terms. June was the 36th consecutive month in which the median existing home price rose. Even if household incomes rise, an increase in home prices (or rent) and other household costs undermines the benefit of higher income.

Increase Supply Clamor “Experts” and Congress

The solution purportedly facilitated by The 21st Century ROAD Act and repeated often in reports, speeches, and the media is to bring more housing to the market. The theory based on a basic economic principle is that prices fall when supply of a good rises. Isolated from other market dynamics, the principle might be helpful to guide improvement of housing affordability. As we will explore in future posts, complexities in the 2026 housing market lifecycle (rental and for-sale) from shovel to keys undermine simple application of Sir James Steuart’s “supply and demand” idea.