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What happened, and who moved.
Mortgage rates at 6.69% are not high. Inflation is high.
But soaring imports (data-center components), a drop in federal government spending, and changes in private inventories ate into GDP growth.
In the South, inventory for sale was up 71% from 2019, while sales were down 8%. Homebuilders are very motivated to make deals.
Promising another morose summer in the housing market.
The first shock was due to the supply-chain chaos in 2021 through 2022. The second shock is now, it's huge, and it's due to the AI investment boom.
This is an economic update published by Wolf Street on July 16, 2026, reporting on U.S. retail sales activity excluding gas stations, noting a fifth consecutive month of increases, and discussing consumer spending patterns across online retail and vehicle dealerships relative to housing purchases.
This is a news article published by Wolf Street in July 2026 reporting on pending home sales data, noting a decline to near-record lows nationally with particular weakness in the West region, in the context of rising mortgage rates.
This is an economic update published by Wolf Street on July 15, 2026, reporting on producer price inflation metrics, specifically noting core PPI at 4.7% and services PPI at 4.6%.
In June 2026, gasoline prices plunged 9.7% month-to-month while core CPI fell 0.02% and all-items CPI dropped 0.42%, with year-over-year core CPI at 2.59% and all-items CPI at 3.53%, driven by energy declines and temporary softness in services and goods categories. The article argues these favorable month-to-month readings represent temporary outliers unlikely to persist and notes the headline inflation data does not provide political support for a Federal Reserve rate hike at the July 2026 FOMC meeting.
Fed Governor Christopher Waller stated that the Federal Reserve should consider tightening monetary policy in the near term if core inflation data from the Consumer Price Index (Tuesday) and Producer Price Index (Wednesday) show continued elevated readings, citing concerns about repeating the 2021 mistake of waiting too long to hike rates. Core PCE inflation reached 3.4% and core services PCE reached 3.7% as of the article date, both well above the Fed's 2% target, while Treasury yields rose significantly with the 1-year yield climbing 6 basis points to 4.12%.
The US government sold $743 billion in Treasury securities during one week in July 2026, comprising $612 billion in bills and $131 billion in notes and bonds, with the 30-year bond yield reaching 5.058%, the highest since 2007. The article attributes rising long-term yields to inflation running above 4%, expectations of future Federal Reserve rate hikes despite recent cuts, and market concerns about the volume of new Treasury supply that must find buyers at potentially higher yields.
Supply of existing single-family homes reached a 10-year high of 4.6 months in June 2026, while condo supply hit a 14-year high of 6.4 months, as sales of single-family homes fell 2.4% month-over-month to an annual rate of 3.73 million and condo sales fell 2.7% to a record low annual rate of 360,000. The 30-year fixed mortgage rate rose to 6.49%, and the national median single-family home price inched up 1.8% year-over-year to $446,400, with dramatic regional divergences including prices down 26% in Austin and up 5.1% in New York City.
AI investment demand is driving persistent inflationary pressures on technology products and electricity prices in the near term, according to Federal Reserve meeting minutes from June 16-17 that mentioned "AI" 21 times, while the Fed noted that expected productivity gains from AI adoption would likely take considerable time to materialize and put downward pressure on inflation only in the future. Core PCE inflation has remained above the Fed's 2% target since March 2020, with the six-month core PCE accelerating to 4.1% annualized by May 2026, driven partly by strong AI-related capital spending and demand.
The European Central Bank shed €149 billion of quantitative easing assets in the second quarter of 2026 and has reduced total QE assets by €3.7 trillion (52 percent) since mid-2022, bringing them down to €3.47 trillion, while simultaneously hiking policy rates to 2.25 percent and raising its inflation projection for end-2026 to 3 percent. The ECB also marked down its gold holdings by €160 billion in Q2 after a decline in gold prices expressed in euros, though the document notes that no adverse economic effects have resulted from the substantial balance sheet reduction.
Consumer inflation expectations have become unanchored from the Federal Reserve's 2% target, with one-year inflation expectations rising to 3.67% in July 2026—the highest since September 2023—and three-year expectations reaching 3.34%, the highest in four years, according to the New York Fed's Survey of Consumer Expectations released in the article. Core PCE inflation has accelerated to 4.1% annualized on a six-month basis as of May 2026, while the article notes that unanchored inflation expectations could become a self-reinforcing psychological phenomenon if consumers and businesses adjust wage and pricing behavior accordingly.
The document reports that the six-month Treasury yield has risen to approximately 4%, with the government selling $84 billion of six-month Treasury bills at an investment rate of 3.97%, up from 3.80% two weeks prior, signaling that bond markets expect multiple Federal Reserve rate hikes within the next six months. The article argues that the bond market is clearly telling the Fed to proceed with rate increases, as evidenced by the 2-year Treasury yield surging 76 basis points since early February to 4.14%, and that banks are raising CD yields above 4% in response to incoming economic data.
The Bank of Japan has reduced its total assets by ¥116.9 trillion (15.6%) since Q1 2024 through quantitative tightening, bringing holdings to ¥639.6 trillion ($3.97 trillion) as of Q2 2026, the lowest level since Q1 2020, while pursuing this policy rather than aggressive interest rate increases to stabilize the yen and address import-driven inflation. Japanese government bond holdings declined ¥12.5 trillion in Q2 to ¥518.3 trillion, loan balances fell ¥9.7 trillion to ¥68.0 trillion, and the BOJ has begun selling equity ETFs and J-REITs at acquisition cost while allowing long-term bond yields to rise substantially, with the 30-year JGB yield reaching 4.0% and the 10-year yield reaching 2.7% despite maintaining policy rates at only 1.0%.
Nonfarm payrolls rose 57,000 jobs in June 2026 with the six-month average reaching 88,000, the highest in two years, while the labor force declined to 169.36 million amid a crackdown on illegal immigration and H-1B visa restrictions, resulting in a historically low 4.19% unemployment rate despite weak job demand. Employment gains across major industries showed healthcare and social assistance adding an average of 50,000 jobs over three months, while financial activities declined by 9,000 monthly on average due to real estate sector weakness, with prime-age labor force participation dropping to 83.3% in June as wage growth at 3.52% year-over-year lagged accelerating inflation at 4.2%.
The share of mortgages with below-3% interest rates remained flat at 19.5% in Q1 2026 after declining steadily from a peak of 24.6% in Q1 2021, while combined below-4% mortgages fell only 20 basis points quarter-over-quarter, marking the smallest decline since their share began falling in 2022. The document attributes the stalling unwinding of the "lock-in effect" to homeowners retaining ultra-low mortgages that offer effectively free borrowing in real terms given inflation above 3%, though the stall could represent either a temporary blip or a longer-term freezing of the housing market.
The yen has fallen to a four-decade low of ¥162.8 per US dollar, declining 37% since 2021 and 53% since 2012, while Japanese Government Bond yields have surged to three-decade highs, with the 30-year yield at approximately 3.96% and the 10-year yield at 2.70%. The Bank of Japan's decades-long ultra-loose monetary policy, combined with only modest recent rate increases to 1.0% and quantitative tightening that has reduced its balance sheet by 12.6%, are described as insufficient to stabilize the currency or address resulting import-driven inflation and rising government borrowing costs.
Lennar reported Q2 2026 earnings showing its average sales price per home fell 4.6% year-over-year to $371,000 (down 24.4% from Q3 2022 peak), reflecting approximately 12.9% in incentives and base price adjustments to sustain sales volume in an affordability crisis. The company increased deliveries by 2% to 20,519 homes and cut construction costs by 13% over several years, but gross margin fell to 15.6% from 17.8% year-over-year, while net income plunged 36% year-over-year to $305 million and Lennar's stock price declined 49% from its September 2024 peak.