The Hidden Impact of Tariffs on Real Estate – Are You Prepared?

Question

The recent tariffs on construction materials are already shaking up the real estate market. With steel, aluminum, and other essential materials facing price hikes, new construction costs are rising 3-5%. This means higher home prices, delayed developments, and a tighter inventory.

For real estate agents, this shift could mean fewer buyers chasing new builds and more demand for move-in-ready homes. The key? Educating buyers on financing options and helping them see the value in existing properties.

For wholesalers, rising renovation costs are squeezing margins on flips, making it essential to negotiate deeper discounts and focus on rental investors who want cash-flowing properties. Creative financing and off-market deals will be more valuable than ever.

💡 Opportunity is knocking. Those who adapt quickly will win big. Are you shifting your strategy to stay ahead of the market? What changes are you seeing in your area?

Clayton Silva · Answer

I would argue most transitory inflation has been eaten up at this point by the market.  On top of that inflation is likely at a record low (people find this hard to believe because of current high prices, but inflation is measured M-o-M).

So to answer your question I think inflation is less the issue than the market at this point.  Do I think we are headed for higher inflation with tariffs? I do not.  Had you asked me 6 months ago I would have said yes but there is a lot of data that changed my opinion and would take too long to type out.

I do think there is a real chance of other issues in the market...foreclosures are very high right now and many people are behind on their mortgages.

Lastly, people rarely talk about this, but we do NOT need the 10 year to drop for mortgage rates to drop.  The normal margin (amount a bank charges on a mortgage loan above the 10 year) has averaged around 1.8-2% for the past 30 years.  Example: 10 yr at 4% (like today) the mortgage rates would be 5.8 - 6% however banks factor risk and volatility is a measure of risk to them so the bank margin on the 10 year is at record highs right now which is why we still see high 6% - low 7% rates for a conventional home buyer.  I honestly think if 10 year treasury rates perfectly flatlined right here at 4.046% (as of writing this) for the next 6 - 9 months and did NOT move an inch, you would actually see a drastic reduction in rates without the fed, without tariffs, without any of it because they would not have to hedge as much for volatility.

Just my 10 cents.

Paul Azad · Answer

PCE last week was 2.5%, so looks like inflation already under control. Inflation will come down a lot more if we get a Recession.

10yr yield = risk of inflation change + risk of GDP growth change

10yr yield rose from September 18th from 3.6 to 4.8 not due to rising risk of inflation but due to FED cuts stimulating GDP growth in a falling inflation environment10 yr yield falling since January 14th from 4.8 to 4.0 now due to massive fall in expected GDP growth (Atlanta FedNow at -3.7% for 1st quarter down from +2%) and this is believed by most economists to be due to anticipation of Trump Tariffs crippling global trade, despite their increasing of inflation which would increase yieldsSo, recession or Trump-Cession is the fear. JP Morgan just raised recession risk to 60% for this year, 2 hours ago. Recession is not good for CRE, no matter how low the 10yr yield.The tariffs announced last night were much higher than what he said on campaign trail or even put into effect 2 months ago, so market having to digest this today.

Also Stock Market and Bond Market are not that correlated, many people say when people sell stocks there is a flight to safety into bonds lowering 10yr yield. But in 2022, sp500 fell 25% and qqq fell 35% but 10 yr yield went from 1.5% to 5% due to rising inflation/growing GDP. Today 10yr yield falling due to fear of recession, not flight to safety. Also, Oil down 7% today due to fear of recession too.

Mike Dymski · Answer

It's very simple.  A recession would negatively impact jobs, credit availability, and asset values.  Everything else is just noise.

V.G Jason · Answer

For inelastic goods that can wait, such as owning versus renting, we will see it get completely frozen.

Clayton Silva · Answer

Banks aren't tightening because volatility is my base case best guess.  Higher vol = higher margin on top of the 10 year to hedge against it.  I could be wrong, but that is what my interpretation of the data is.

Normally, I would agree with the secondary problem concern, but if prices don't drop, or don't drop too much, the banks are going to be able to firesale foreclosure inventory at a premium over loan amounts because of record price inflation over the past few years.  Now if we have a sudden 2008 level correction, I will be eating my words here lol.

At rates over 6% (generally as a rule of thumb) price decreases do not have significant impact on affordability.  An interesting piece of data to look for (if it can be found) would be net sale price: ie, what concessions are being given.  Price decrease of 3% does nothing for buyer, but a 3% seller concession toward a rate buydown has a pretty meaningful impact on the buyer affordability.  So what we see is prices remaining seemingly high, but I am seeing a TON more concessions from sellers on the settlement statements so the true net prices are actually lower than reported sale prices.  I'd imagine it's a bit tricky to aggregate that.

Ying Tang · Answer

It's hard to predict. Federal Reserve would not want to cut rates before inflation is under control. No way inflation can come down in short term given the new tariff in place.

Pedro Andrade · Answer

Love this breakdown, but let me play devil’s advocate for a second...

Lower 10-year yields might push mortgage rates down for now, but isn’t that just a temporary sugar rush for the market?

If instability keeps driving money into bonds, what happens when inflation resurfaces or global markets react? Are we just setting the stage for another whiplash effect when the Fed has to course-correct again? And how will banks respond in the long run—will they keep mortgage rates low, or will they price in the volatility with wider spreads?

More liquidity in the market sounds great, but are we overlooking the long-term consequences? Would love to hear others’ takes on this. Are we riding a wave, or is there a storm brewing beneath the surface?

Clayton Silva · Answer

Thought experiment:

Tariffs, no tariffs, tariffs, no tariffs, this all creates instability.  Instability = flight from risk-on assets (stocks, crypto, etc).  Money leaves these assets, and heads to more stable/secure assets (bonds, treasuries, etc.).  More people/money flowing to bonds and treasuries bids up price... price and rate are inverse relationships so the rates get compressed.  Now the current administration doesn't have to wait for the Fed to push rates down, they can effectively force rates down as people flee securities for bonds.  We are already seeing this in real time as the 10 year is at lowest levels since September.

So what? Lower 10 year rates loosely translates to lower mortgage rates (as long as treasury volatility does not drastically increase causing bank margin to increase further).  Lower rates = more activity and larger buyer pool which ultimately drives activity and pricing.

Chris Seveney · Answer

I personally do not see new construction sales prices rising - they are already starting to come down. Costs to build may be more expensive but it will probably eat into profits as we continue to see economic turmoil which the home price balloon from covid is starting to pop, especially in some areas. I cannot tell you how many new homes in Port Charlote FL I see that are in default coming through the loan tapes we see. I would guess we have seen atleast 30 in a specific area/neighborhood over the past month. This is an outlier but wages are not keeping up and home prices skyrocketed quickly which will come back toward a norm.

Josh Bowser · Answer

In the Atlanta market - not sure if 3-5% really affects anything for a 'snapshot in time'. The new builds on the market won't be impacted. Future supply may dwindle but we're already seeing numbers get tight for devs on new projects with rates.If population growth continues.. it's just going to drive prices higher due to supply tightening or folks will start buying in cheaper areas.

Tariffs are likely just a talking point when it comes to rehab margins.. From what I have been seeing.. labor > material costs for most reno projects. Can you make the argument that labor will demand higher wages due to increase in prices? Maybe? but labor has demanded a lot since covid.. I think we will be okay there.If things get really tough - decrease in rates might just make up for everything from an affordability perspective.

The Hidden Impact of Tariffs on Real Estate – Are You Prepared?

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