Inflation is cooling, home prices are holding, and the data is starting to point toward a more favorable rate environment. Here is what matters right now.

Inflation Hit a Five-Year Low

July CPI came in at just 0.1% for the month, pulling the annual rate down to 3.4%. Core inflation, which strips out food and energy, rose 0.2% and now sits at 2.5% annually, its lowest level since March 2021. Wholesale prices came in essentially flat. Annualizing the last three months of core CPI puts inflation at roughly 1.6%, already below the Fed's 2% target.

This matters for mortgage rates. The Fed held its benchmark rate at 3.50% to 3.75% at the last meeting, but softer inflation combined with a weakening jobs report removes much of the justification for further hikes. The next key dates are the July meeting minutes on Wednesday and the September 15-16 Fed meeting.

Home Sales Slowed, but Prices Did Not

Existing home sales dropped 1.7% in July to a seasonally adjusted annual rate of 4.06 million, the second consecutive monthly decline. Inventory also dipped 1.9%. Despite that, sales are still up 0.7% year over year and up 2.4% for 2026 so far. NAR's chief economist noted the market has been remarkably stable and suggested meaningful momentum could return if rates approach 6%.

Home values continue to appreciate. Cotality's Home Price Insights report shows prices up 0.3% from May to June and 1.2% higher than a year ago. The spring run-up from March through June totaled 1.7%, which projects to roughly 5.1% annualized appreciation.

What This Means on the Central Coast

Buyers who have been waiting on the sidelines are watching the right indicators. A rate environment trending toward 6% would shift affordability meaningfully in this market. Sellers continue to benefit from limited inventory and sustained price growth.

Reach out to the Keenan Carter Group with any questions about how these trends affect your specific situation in SLO or Santa Barbara County.

Sources: MBS Road Signs (Luis Mendez, Nations Lending, 8-18-2026), Cotality Home Price Insights, NAR Existing Home Sales Report