September 14, 2026 - Uncertainty is likely to remain the dominant theme for the economy and housing market through the rest of the year, as inflation pressures, shifting labor market expectations, and geopolitical risks continue to weigh on consumer sentiment. The near-term outlook may be challenging, especially if interest rates stay higher and buyers remain cautious. Still, resilient first-time buyer interest, pockets of business optimism, and easing insurance premium growth, suggest that conditions could stabilize if inflation cools and policy uncertainty begins to fade.

August inflation data put pressure on the Fed: The latest inflation report pushed the U.S. central bank closer to raising rate as core prices rose more than expected on a month-to-month basis. The headline consumer price index (CPI) was up 0.4% month-to-month in August after rising 0.1% in July. On a year-over-year basis, it was up 3.4%, unchanged from the prior month and was in line with consensus expectations. Core CPI was up 2.4% from 12 months ago in August and recorded the slowest annual growth pace since March 2021. Its monthly increase, however, recorded a 0.3% increase after inching up 0.2% in July and exceeded economists’ expectations. Energy price growth was the primary reason for the increase in headline inflation as gas prices surged 27.4% year over year. Computer software, accessories, and related items also shot up 25.4% from last August. Shelter (3.0%) and food away from home (3.4%) rose moderately, while appliances stayed virtually flat (0.1%), and used cars/trucks (-2.3%) dipped in price. With core inflation climbing more than expected and gas prices remaining on a rising trend, markets now see a Fed’s rate hike in the upcoming FOMC meeting as a very likely scenario.    

Short-term inflation expectations remain unchanged as job market outlook continues to fluctuate: Inflation expectations last month remained unchanged in the short term but moderated in the medium term, according to the New York Fed’s Survey of Consumer Expectations. Despite an increase in gas price growth expectations – up 1.7 percentage points (ppts) to 4.6% - in August, the median inflation expectations at the one-year ahead horizon was unchanged at 3.6%, while the expectations at the three-year ahead horizon dipped 0.1 ppt to 3.2%. Home price growth expectations also decelerated but remained positive, as the median slowed to a 3% growth pace, likely because of rising interest rates. Pessimism in employment outlook might have played a role as well in the decline in home price expectations. Consumers’ unemployment expectations pulled back in August with the mean probability that the U.S. unemployment rate being higher a year from now climbing to 44.4% last month, reaching the highest level since August 2020. The mean probability of losing one’s job in the next 12 months also dropped by 0.4 ppts to 13.8%, the lowest level in six months. With the latest jobs report showing more hirings at the end of the summer, labor market expectations will hopefully improve in the months ahead.  

Homeowners insurance premium hits record high but growth rate easing: Property insurance costs for homeowners continued to rise in Q2 2026 and reached a new record but the pace of increase is slowing, according to Intercontinental Exchange (ICE)’s September 2026 Mortgage Monitor Report. Insurance premium for the average single-family mortgage holder was $209 per month as of June and was about 80% higher than the start of 2020. The premium growth rate has been slowing though with insurance costs rising at 1.8% on a quarterly basis in Q2 2026, the slowest pace on record since ICE started tracking the metric in 2023. Premiums in California increased between 10.5% and 12.5% in every major market, among the highest in the nation. However, the Golden State carried the lightest insurance burden, with nine of the ten major markets in California paying a below-average premium. With insurance costs rising by double digits in many areas in the state, California homebuyers will likely continue to face affordability challenges this year and next year when purchasing a property.  

First-time buyers motivated but challenges remain: Lower interest rates in the first half of 2026 motivated more first-time buyers to enter the market, according to the latest Annual Housing Market Survey conducted by the California Association of REALTORS® in Q2 2026. The share of sales purchased by first-time buyers inched up to 32.6% in 2026, compared to 32.1% in 2025, but remained below the long-run average of 36.9%. Homebuying is still financially challenging for many first-time buyers, as the median monthly mortgage payment remained above $3k, despite dipping from 2025 by 17.6%. The median household income for first-time buyers also inched down to $124k this year from $125k reported last year but was 37.8% higher than the median household income of $90k recorded before COVID in 2019. With mortgage rates continuing their upward trend since the beginning of July, the share of first-time buyers could dip in the months ahead as some first-time buyers move to the sideline.

Weaker sales cool small business optimism: Businesses feel good for now, but owners are wary about the future as weaker sales and inflation concerns build up, according to the latest NFIB Small Business Economic Trends. August’s Small Business Optimism Index edged down 1.1 points to 98.7 from July but remained above its 52-year average of 98.0. The unsettling situation in the Middle East continues to apply upward pressure on prices and put a hold on business expansion plans as the geopolitical uncertainty lingers on. While the Uncertainty Index dipped last month to 89, it has been oscillating up and down since May 2025 and remained well above the historical average of 68. Both actual sales and sales expectations declined, with a net -9% of business owners reporting higher nominal sales in the past three months, a dip of 5 ppts from the prior month and was the lowest level in nine months. The net percent of owners who anticipated higher sales over the next quarter also fell one point from July. With the U.S-Iran military strikes intensifying and a ceasefire nowhere in sight, business optimism could pull back further in the coming months.

Note: This summary report gets updated every Monday by 6:00 pm PST. Feel free to email us at [email protected] if you have any questions and/or feedback.

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