August 10, 2026 - The second half of 2026 got off to a slow start, as renewed tensions in the Middle East created new uncertainty for the economy and the housing market. July began with some hope that softer inflation and modest mortgage-rate relief could help bring more buyers back into the market, but the re-escalation in the region pushed oil prices higher and kept upward pressure on bond yields and mortgage rates. As a result, affordability remained strained, buyer demand softened, and the market’s recovery continued to move cautiously. But while growth has softened and uncertainty remains elevated, consumer finances have shown some signs of improvement. If the labor market holds up and geopolitical risks begin to subside, the economy should still have enough underlying resilience to support a modest improvement in housing conditions before year-end.

Labor market unexpectedly shed jobs in July: The U.S. economy reported weak-than-expected employment conditions in July, posting its first loss in job growth after four straight months of increase. Total nonfarm payrolls fell 23k last month, a number well below the consensus expectations of an 83k gain. May and June payrolls numbers were also revised downward with the economy added 103k fewer jobs in those two months. The sizable pullback in hiring was due partly to a contraction in local government education, which declined by 50k roles. Job losses in the leisure and hospitality industry (-40k) also contributed to the decline last month, as the FIFA World Cup concluded in mid-July. The health care and social assistance sector continued to grow, but health care employment gain appears to be slowing down. The labor participation rate dipped again last month and reached the lowest point since February 2021, a sign that more workers are dropping out of the labor force. The unemployment rate, as such, declined slightly to 4.1% from 4.2% in June. Average hourly earnings increased 3.2% from a year ago but the increase came in below the annual inflation gain of 3.5%, an indication that wages are struggling to keep pace with price increases. The latest jobs data renewed questions about the economy’s fundamental strength at a time when inflation remains an ongoing issue, complicating the Fed’s decisions on their next rate movement.

Housing affordability dips from early 2026 and the outlook remains murky: Housing affordability in California retreated in the second quarter after reaching a four-year high in early 2026, as elevated mortgage rates and higher home prices increased borrowing costs in the latest quarter. The statewide Housing Affordability Index (HAI) for existing single-family homes declined three percentage points (ppts) from 22% in Q1 2026 to 19% in Q2 2026 but remained two ppts above its year-ago level. The statewide median home price climbed to $916,750, and the monthly mortgage payment for a median-priced home rose to $5,710, while the corresponding minimum qualifying household income hiked up to $228,400. Although affordability improved from a year earlier as mortgage rates remained below 2025 levels, the recent jump in borrowing costs amid renewed inflation concerns and geopolitical uncertainty could erode those gains and weigh on housing demand in the second half of the year.

Mortgage rates reach one-year high but moderate after July jobs report: Mortgage rates have remained elevated and recently reached their highest level in more than a year, contributing to a decline in mortgage demand as purchase applications fell 3% year-over-year in the latest Mortgage Bankers Association survey that closed on July 31. Rates moved higher following the July FOMC meeting as the Fed remained hawkish amid ongoing inflation concerns. Rising oil prices and continued uncertainty surrounding the Middle East conflict have been the primary factors that kept upward pressure on inflation expectations and bond yields. The weaker-than-expected July jobs report, however, pushed Treasury yields lower and provided some relief for mortgage rates last week, although financing costs remain high enough to weigh on home sales activity.

Foreign buying activity slowdown in 2026: From April 2025 through March 2026, foreign buyers purchased 67,100 U.S. existing homes worth $45.3 billion, marking a 14% decline in transactions and a 19.1% drop in dollar volume from the previous year, according to the 2026 International Transactions in US Residential Real Estate Report released by the National Association of REALTORS® (NAR). The number of properties purchased was the second-lowest level on record, as high prices, elevated borrowing costs, and reduced international travel to the U.S weighed on foreign buyer activity. Canada accounted for the largest share of purchases (16%), followed by Mexico (14%) and China (11%). Florida remained the top destination for foreign buyers (20%), followed by California (19%) and Texas (12%). With geopolitical tensions likely to ease and mortgage rates expected to decline gradually later this year, international transactions could slowly pick back up in late 2026 and early 2027.

Household finance expectations improve in July: Americans felt less negative about their financial situations, even though they believed their buying power could be stretched a bit more in the next 12 months, according to the latest New York Fed’s Survey of Consumer Expectations. In July, consumers expected their median household income in a year to grow 3% from now, unchanged from the median growth rate registered in June. They also expected their household spending to remain on the rise though and will grow 4.9% a year from now. While households anticipated to lose some purchasing power on their paychecks 12 months from now, Americans felt less pessimistic about their financial situations last month. Perceptions about their current financial situation compared to a year ago improved, with 37.7% believed they were worse off than 12 months ago, a decline from 39.1% recorded in June. Future household financial situation expectations also improved as the share who believe they will be financially worse off a year from now dipped to 30.2% from 34.0% in June. The improved outlook in financial markets in recent weeks may have helped provide more confidence to consumers about their future supplementary income, and news on the U.S. preparing to hold off on new military action against Iran also could improve optimism in the upcoming August report.  

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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