**Sources (with links) used for this article are compiled at the bottom. These sources would also be good for further reading/research into the topic.
The latest Consumer Price Index (CPI) report from the Bureau of Labor Statistics showed that inflation in August was 2.9% higher than a year ago. In plain terms, prices for goods and services are nearly 3% higher now than last August.
This marks a slight uptick from July’s 2.7% rate and suggests that price growth isn’t cooling as quickly as hoped. While 2.9% inflation is far off from the 9%+ spikes we saw at the peak in 2022, it’s still above the Federal Reserve’s 2% target.
For those of us in real estate and mortgage lending, this number is a glimpse into where the economy might be headed and how it could impact our clients and business.
Inflation Is Creeping Up Again
After many months of easing price pressures, August saw inflation nudge a bit higher. On a monthly basis, prices rose 0.4% from July to August, double the pace of the previous month’s increase. A few everyday culprits drove this bump... gasoline prices jumped noticeably in August, and grocery bills also grew.
In fact, the CPI report notes that gas prices and overall energy costs rose during the month, along with food prices. Anyone who’s filled up their tank or gone grocery shopping lately probably isn’t surprised by that.
Housing Costs
Another factor keeping inflation elevated is housing costs. The “shelter” component of CPI, which includes rent and homeowners’ equivalent rent, climbed 0.4% in August alone and is up about 3.6% over the past year. Housing has been the single biggest contributor to recent inflation increases. This reflects how home prices and rents remain high after the past few years’ big run-up.
Even though the housing market has cooled compared to years past, the cost of putting a roof over your head is still much higher than it was a couple of years ago.
So, Americans are still feeling a squeeze on their budgets, whether at the gas pump, the grocery aisle, or when paying for housing.
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Why Inflation Matters to Housing and Mortgages
You might be thinking... “Okay, prices are higher, but what does 2.9% inflation have to do with real estate or my mortgage clients?” It turns out inflation and housing are closely linked in a few important ways.
1. Eroding Purchasing Power
High inflation means dollars don’t stretch as far as they used to. When consumers are spending more on gas, food, and other essentials, they have less money left to save for a down payment on a home. Over time, this strains affordability and can reduce demand for homes.
For example, if a family’s grocery and utility bills are eating up a bigger share of their paycheck due to inflation, it’s harder for them to put aside funds to buy a house. Real estate agents might find that some potential buyers need to pause or scale back their home search simply because other rising costs squeeze their budget.
2. Pressure on Interest Rates
Inflation is a key factor that influences mortgage interest rates. In general, when inflation is high or rising, lenders and investors demand higher interest rates to compensate for the decreasing value of future dollars.
If inflation remains above the Fed’s target, it puts upward pressure on mortgage rates. We’re already seeing this... mortgage rates have been significantly higher this past year than they were during the ultra-low rate era.
In August, even as inflation ticked up, we actually saw 30-year fixed mortgage rates dip to around 6.3-6.5% (the lowest in months). Why did they drop? Largely because financial markets expect the Federal Reserve to cut interest rates soon due to other economic signals (like a cooling job market).
However, if inflation stays stubborn, it could limit how much and how fast mortgage rates can fall. Renewed inflation worries could keep borrowing costs elevated for longer, meaning buyers won’t get much relief on mortgage payments in the near term.
3. The Fed Factor
The Federal Reserve’s battle with inflation has huge implications for real estate. The Fed has aggressively raised its benchmark rates in recent years to get inflation under control, which indirectly pushed mortgage rates up. Now, with inflation down from its peak but not yet at target, the Fed faces a tough decision.
They are widely expected to begin cutting rates soon (possibly a modest 0.25% cut) to support a slowing economy. But they’ll be cautious – they don’t want to cut too fast and see inflation flare up again.
For real estate and mortgage professionals, this means we shouldn’t bank on a sudden return to the 3% mortgage rates of 2021. Any rate relief is likely to be gradual. The Fed will likely tip-toe rates down if inflation permits, rather than slashing them dramatically.
Inflation data like this CPI report directly informs Fed decisions about how expensive it is to borrow for a home.
Impact on the Real Estate Market
For both homebuyers and sellers, the recent inflation news carries a mix of good and bad news. On one hand, it’s encouraging that inflation is nowhere near last year’s highs. That suggests the broader economy is stabilizing and we’re not in some runaway inflation scenario.
This stability can help consumer confidence. On the other hand, the uptick to 2.9% reminds us that we’re not out of the woods, and it introduces uncertainty for the months ahead.
Buyer Affordability
High inflation coupled with higher mortgage rates creates a double-whammy for homebuyers. We already mentioned how everyday inflation erodes savings. Additionally, mortgage rates around the mid-6% range mean monthly payments are considerably higher now than a few years ago on the same loan amount.
Buyers are facing the most unaffordable conditions in years, with prices that haven’t fallen much and borrowing costs that are elevated. It’s no surprise a recent survey showed a large majority of consumers feel it’s a bad time to buy a home. As agents and MLOs, we need to empathize with buyers’ challenges: many are either priced out or waiting it out for better conditions.
First-time buyers, in particular, might choose to delay purchasing, hoping their incomes rise and interest rates fall in the future. We should be ready to counsel clients on budgeting, mortgage options, and the pros and cons of buying now versus later.
Some clients will still move forward due to life circumstances or fear of missing out, but many others will be understandably cautious.
Seller Considerations
For homeowners thinking of selling, rising prices (both inflation and home values) are a bit of a double-edged sword. Home prices nationally are still up year-over-year (even if just slightly), so many sellers can get a great price for their home.
In an inflationary environment, tangible assets like real estate often hold value, which is a plus for owners. However, most sellers also need to become buyers elsewhere, and they’ll face the same high costs and financing challenges.
Another major factor is interest rate “lock-in.” A whopping 80%+ of current homeowners have a mortgage rate under 6% from refinances or purchases in years past. These folks are reluctant to sell and give up their cheap mortgages only to take on a new loan at today’s ~6.5% rates.
This dynamic has kept housing inventory very tight. Even though demand has cooled, supply is so low that home prices haven’t dropped much. If inflation had quickly fallen and allowed mortgage rates to decline back into, say, the 4-5% range, we might have seen more move-up sellers listing their homes. But with rates stuck higher, many homeowners are staying put, which limits options for buyers.
Real estate agents should keep this in mind when advising sellers. If you have a motivated seller, they may actually benefit from the low inventory (less competition on the market). But they’ll need a game plan for buying their next place in this environment.
Investor and Market Sentiment
Inflation at 2.9% also plays into broader housing market sentiment. Investors in real estate (and even regular homebuyers) pay attention to inflation because it influences their return on investment and financing costs. If inflation were to surge unexpectedly, it could lead to even higher interest rates that cool off housing demand further.
Conversely, if inflation steadily drifts down toward 2% over the coming months, it could be a green light for the Fed to ease up, which in turn could bring mortgage rates down and possibly energize housing activity. Right now, we’re in a bit of a limbo... the economy is sending mixed signals. Price growth is still a concern, but hiring and growth are slowing. This kind of environment can make people nervous about big financial moves.
In fact, measures of homebuyer sentiment have slipped, with more people worried about job security and their finances due to these mixed economic signals. As industry professionals, being aware of these sentiments lets us better support and reassure our clients.
The key message is that the housing market’s direction this fall may be less predictable than usual because it hinges on which force wins out, either cooling inflation that pulls rates down or persistent inflation that keeps rates up.
🧑🌾 Harvest Hustle Sale
Historically, September is when farmers bring in their major crops. It’s the season of abundance, when fields and orchards are full and communities are celebrating the year’s yield. To celebrate abundance in the mortgage industry, too, take 20% off all mortgage continuing education courses at Empire Learning this week. Use code FEAST at checkout and soak up the savings while earning those credit hours.
🚜 Browse CE CoursesOffer valid through September 21. Use promo code FEAST at checkout.
Looking Ahead
So, what should real estate agents and MLOs take away from all this?
Stay Informed
First, stay informed. Economic news like the CPI might seem far removed from selling houses or closing loans, but as we’ve discussed, it trickles directly into our day-to-day through interest rates and client behavior.
When clients ask, “Where do you think mortgage rates are headed?” or “Should I buy now or wait?”, understanding the inflation picture helps you give a thoughtful answer. You can explain that the Fed watches inflation closely and that the latest data shows a bit of a setback in the fight against rising prices, which likely means mortgage rates will remain in the current range for a while.
Emphasize the Long Term
Second, emphasize long-term planning and perspective. For buyers worried about high inflation and rates, remind them that these cycles ebb and flow. You can’t time the market perfectly. What matters is buying when it makes sense for their personal situation, and planning to hold the property for long enough that short-term economic blips even out.
If a client can afford the home they want and it fits their life, there are ways to navigate inflation. For instance, maybe using an interest rate lock or exploring loan programs that could ease initial payments. For those who prefer to wait, support that decision too, perhaps encouraging them to use this time to save more (benefiting from higher interest on savings accounts thanks to those Fed rate hikes) and improve their credit so they’re ready to act when conditions improve.
Manage Expectations
For sellers and homeowners, the conversation might be about managing expectations. In many markets, we’re past the crazy bidding wars era, but well-priced, move-in-ready homes can still sell quickly due to limited supply. However, inflation in construction costs and goods might make buyers a bit more budget-conscious, so overpricing a listing is risky.
Also, if a homeowner is selling and planning to rent for a while, be sure they factor in that rents have also gone up with inflation (sometimes renting isn’t as cheap as they’d expect). If they’re selling and buying another home, help them run the numbers on carrying a new mortgage at today’s rates. Sometimes the trade-up might be worth it, but other times staying put longer could make sense, especially if inflation and rates are expected to moderate next year.
Keep an Eye on the Fed
Lastly, keep an eye on the Federal Reserve’s next moves. The Fed’s meetings in the coming months will reveal how they balance this 2.9% inflation news with the other side of the coin – a cooling job market. Many analysts still anticipate a small rate cut from the Fed in the near term, which could be a modest positive for mortgage rates.
But beyond that, if inflation doesn’t convincingly move down toward 2%, the Fed might pause further cuts. This means 2025 could see mortgage rates hovering in a higher range than we all got used to during the pandemic years. Being prepared for that scenario is important.
- As MLOs, that might mean getting creative with mortgage products (like ARMs, buydowns, or other affordability solutions) and staying aggressive on finding the best rates for clients.
- As agents, it means coaching buyers on patience and resilience, and working hard to find any available inventory or off-market opportunities, since the easy days of low rates and abundant listings are behind us for now.
TLDR...
In conclusion, the August inflation bump to 2.9% is a reminder that our economy is still finding its post-pandemic footing. We need to watch these economic signals, anticipate how they impact our industry, and guide our clients through the uncertainty.
Being knowledgeable and empathetic about the challenges high inflation poses means we can provide real value, whether it’s helping a young family figure out how to buy their first home amidst rising costs or advising a homeowner on the best timing to sell.
The tone of the moment is caution, but not panic. Inflation is higher than we’d like, but it’s a lot lower than it was. Mortgage rates are higher than we remember, but they’re still historically normal (anyone who’s been in this business for decades can attest to that!).
Inflation’s latest rise might delay the kind of relief the housing market wants, but it doesn’t derail it. As we head into the fall, we should all keep an eye on the data and be ready to adjust our strategies. The more we understand the forces at play, like inflation, the better we can help our clients navigate the current real estate landscape with confidence.
As always, stay calm and sell on!
Sources
- U.S. Bureau of Labor Statistics – Consumer Price Index Summary, August 2025
- Realtor.com Economic Research – “CPI Rises, Leaving Fed in Inflation–Labor Bind Ahead of September Cut” (Jake Krimmel, Sept. 11, 2025)
- Bankrate – “Inflation and the housing market: Decoding the latest numbers” (Andrew Dehan, Sept. 11, 2025)
- Realtor.com Economic Research – “Mortgage Rates Drop Again to 6.35%” (Jiayi Xu, Sept. 11, 2025)