Dad with vascular dementia has been in assisted living for 6 months. We are about to auction his stuff and rent his house. Should we tell him?

Since he is still very social and gets out in the community then it seems you already know that it is very likely he will find out. If you are just looking for a way to soften the news I'm not sure it's possible, in an ideal world you could include him in the planning so he still feels in control but it sounds like he will be very resistant to the idea so that's out. Sorry.

Polar bear, yes small towns are bad for gossip. Many do not understand his demita, therefore as much as we dread it, we'll likely have to tell him. The nurse has offered to be with us, as my sister and I tell him. Even the nurse knows that this will not be an easy conversation and knows my dad will most likely "lose it". ( he's done it several times on other situations)

That he does great when you are not there and then dumps his anger on you is soooooo common. I think most people can say they experienced something similar when their parent was placed.

I would let anyone who might come to visit know that he isn't able to really understand and process the need for additional income and you made the decision for his wellbeing but you haven't tried to explain it to him and ask if they would not tell him.

If he finds out you can explain that you felt it was in his best interest to use his house to generate more income for his immediate needs. Which is true, unless specifically brought up I wouldn't mention selling his stuff. It will be a bigger loss for him to know everything is gone.

You are doing a great job, don't feel bad and remember he does great until he sees you. I actually watched my dad without his knowing and I personally found that he was indeed fine but the staff exaggerated the good and he exaggerated the bad and the truth was a happy in between.

Will telling him make him less anxious, less angry, less agitated?
Could it make him less trusting, more suspicious, more agitated?
I think the nurse’s intention may be honorable, but no, it wouldn’t have worked for MY LO, the last of a wonderful family who occupied the same home for 130 years, now in the process of being sold.
Her lawyer suggested that she be taken from the AL where she has slowly s l o w l y adjusted, to the home in which she was born, and shown the things she grew up with and loved in case she wanted them distributed to any of her nieces and nephews........
She was SO STRONG, and worked SO HARD to stay in that house, then because she couldn’t deal with the stairs and the rugs and the checking account and the laundry.
She knew herself that the house was no longer safe for her, and when she left for the AL she constantly wanted to get HOME, and finally we had the good fortune to have access to a quiet, gentle psychiatric PA., who recommended the smallest dose of an anti anxiety/anti depression medication, and.......we began to see her again as more like herself.
If you choose NOT to tell your dad about his losses, you may need to cover anything said to him by visitors by telling a small fib. Or a large fib. Whatever makes him comfortable and peaceful.
If you are uncomfortable “fibbing”, imagine how uncomfortable he must be with what he’s hearing as his dementia tainted “truth”.
Caring for a dear loved one with dementia is making the best choice among a bunch of unimaginably difficult choices, and remembering that he entrusted his care to you because he knew you’d make the hard choices out of your love for him and a desire that he be well cared for by compassionate professionally trained experts.
Be grateful that he’s “doing great”, and spare him stress that isn’t necessary for him to be even trying to understand.

I agree with willie, I wouldn't tell him. The nurse is the only one u discussed it with, correct? She should not be telling the staff. If you see people who may go to the facility to visit Dad or someone else, ask them not to say anything.

I suggest you keep very good records. If you r auctioning off furniture than it must be worth something. If you ever need Medicaid, they will want to know what you got for his stuff.

Do you think it is really likely that he will hear about it? In my experience people who go into a facility are dropped like hot potatoes by all but a few friends and family members - in my world it would be possible to mention to those few that what he doesn't know can't hurt him. (Make sure the staff know how to button their lips, IMO they are the greatest danger of letting something slip)
If it does need come up I'd mention that renting the house to keep it in good shape and bring in some money seems like a good plan "for now", it's not like you've sold it. I'd steer clear what has happened to his possessions if possible or mention that you sorted through some of the stuff that wasn't needed but you know where everything he needs is (true).

You mentioned living in a small town, someone is going to tell him. Better that someone be you first. Try to think of ways to present it to him in a way that is least upsetting to him. Enlist the nurses to help you convince him.