Monthly Economic Summary — August 2026
Mortgage rates spent August at the year's highs, and demand has slowed a bit as a result. We're seeing slightly fewer sales contracts each week, along with lower mortgage applications and credit checks. (Data for these three high-frequency indicators are in the slides below.)
The Optimistic Case for Rates
A month ago, markets priced roughly a 37% chance the Fed would raise short-term rates at its July meeting. That's now off the table. Heading into the September 16 meeting, futures indicate the odds of a hike essentially at zero.
Inflation data is still too high, but easing. The Cleveland Fed's one-year measure dropped from 3.04% in June to 2.39%, and core CPI came in at 2.47%.
Interest rates haven't caught up yet. The 10-year Treasury barely moved all month. The 30-year mortgage rate peaked at 6.85% on July 23 (a one-year high) before easing to 6.74%. The spread between mortgage rates and Treasuries is narrowing slightly; it normally runs closer to 1.7 points. If that spread keeps closing, mortgage rates could drift into the low 6s even without any Fed action.
Jobs Still Aren't Cooperating
The labor improvement we'd hoped for hasn't materialized. July payrolls lost 23,000 jobs. Unemployment fell to 4.1%, but only because the labor force shrank not because hiring picked up. The number that matters most for us is the hiring rate, which is still stuck at 3.4%. When companies aren't hiring, fewer people relocate for work, and that’s a limiter for home sales.
Wealth Effects Are Still Working in Our Favor
Beyond rates and jobs, wealth is a third driver of housing demand. The S&P 500 is up 19% over the past year, and business profitability remains high. These wealth effects show up as demand in certain markets, especially luxury-oriented ones.
Homeowners Remain in Strong Financial Shape
New consumer credit data from the New York Fed, also in the slides, illustrates just how strong a position American homeowners are in: very few mortgages in any stage of delinquency, very few foreclosures, and substantial headroom left on HELOCs. Bottom line: don't count on distressed inventory adding to supply anytime soon.
Mike Simonsen
Chief Economist | Compass International Holdings
