Inflation Fears Soar to 1980s Levels

Dave:
The so-called Liberation Day tariffs have officially kicked in sending shockwaves through the markets and raising big questions for real estate investors. Today we’re breaking down what all the recent news means for the economy, the housing market, and for your portfolio. I am your host, Dave Meyer, and I am joined with our esteemed panel, Kathy Beckie, Henry Washington and James Dard. We’re going to be diving into the latest headlines, sharing our hot takes and helping you make sense of the madness. Now, James, Henry, Kathy, are any of you just completely exhausted by the word tariff at this point? I am tired of saying

Henry:
The word. You better get used to it. I don’t think you’re going to stop hearing
It for
Quite some time, my friend.

Dave:
Well, welcome to all of you. Thanks for being here and thank you all so much for listening. In this episode, we are going to talk about tariffs. We’re going to talk about a couple of other things as well. We’ll start by talking about mortgage rates because there’s some big swings to mortgage rates that honestly, I didn’t really think were going to be an immediate result of tariffs, but that is happening and we should talk about it. We’ll also talk a bit about how tariffs could impact construction costs, why consumer confidence in the US is tanking and we’ll talk about how Zillow is pushing to make real estate listings more exclusive. Alright, let’s jump into this. Kathy, you brought us our first story here. You’re going to take on the hard one here, so let us know what’s on your mind.

Kathy:
Alright, well I brought a kind of a scary headline. I suppose you could say. This is from Yahoo Finance and the headline is the Nuclear Option China could take in Trade War with the US. Spoiler alert, we’re not talking about nukes, we’re talking about bonds and the fact that China has so many US treasuries, they say a trillion dollars worth. Some say they don’t really know because some of it may be hidden in European bank accounts or something, but the bottom line is we know that China is a huge holder of US treasuries, so is Japan, and we saw last week on Wednesday that Trump gave 90 days pause on the tariffs and guess why? It’s because the bond market carries so much weight, so much so that it was able to send a very clear message to President Trump that listen, we have power over this situation and if we dump our bonds and our treasuries, and this is all kinds of countries who may be very upset with the US right now if they sell off their bonds all at once.
Well, it’s kind of like selling real estate in one market all at once. If you flood the market with an asset, there’s too much supply, prices go down, yields go up, and that’s basically what happened last week. There was a bond sell off and there’s lots of questions as to why. Is it because there’s been confidence lost in the US financial markets and so they just want out even at a loss or was it a clear message? We don’t like what’s happening over here and we have a little more power than you think. So that’s kind of where it is. Whatever it is, Trump heard it loud and clear and put a pause. Now, I’m not sure the White House is quite admitted to that yet, but it is interesting that it all kind of happened about the same time

Dave:
And they did. They sort of indicated that the bond market was what they were worried about, not really the stock market.

Kathy:
So that’s where things stand right now is the bond market spoke out. Now, how this affects real estate investors, again, we’ve talked about it so many times here on the market, when the market is flooded with bonds for sale basically then the yields go up and when yields go up, that also translate to mortgage rates going up. So we saw mortgage rates go up again just after they had come down and there was this little reprieve and there was a bunch of mortgage applications because finally rates were coming down and they shot up again. So who knows where they’re headed? I think the bottom line is the US has to build confidence again with the world if we want them to continue to buy our bonds.

Henry:
I mean, I think right now it’s very easy to see why there’s a lack of confidence in investing your money in the US market. It’s so uncertain. It’s uncertain and there’s no predictability. No one truly has any idea what’s going to happen next. And when there’s that level of volatility, then people are going to protect their money and so they’re not going to invest.

Dave:
I just want to make sure everyone understands exactly what this means that mortgage rates have gone up because international actors largely and some domestic actors have for one reason or another decided to sell a lot of their bonds when bonds flood the market, like Kathy said, that basically pushes down prices for bonds like it does in any asset class that pushes up borrowing costs. And so there are some theories that perhaps people are losing confidence in the US and they want to move their money to other places. There are some theories that the international community wants to sort of punish the US for these tariffs by increasing our borrowing costs and this higher borrowing costs could cascade throughout the economy. But obviously as real estate investors, this hits us pretty hard because it almost immediately impacts mortgage rates when borrowing costs in the 10 year US treasury go up, mortgage rates go up, and we’ve seen this sort of just huge pendulum swings. We were at 7.1 in January, we’re down to 6.6 now we’re back up to 7%. And I think the thing that’s sort of been an eyeopener here, at least for me, I don’t know about you guys, is like, yeah, the bond market moves in a lot of mysterious ways, but a lot of what’s happening with mortgage rates can’t be controlled by the Fed. Even if the Fed lowered rates right now, that might not change what’s going on here.
And
So it does create this feeling of hopelessness. I don’t know. We’re completely powerless over how some of these things are changing because we have this super diverse globalized financial system which has benefits and trade backs, but this is one of the trade-offs that we’re starting to see right now.

Kathy:
And I look at this oddly enough as part of what makes our country healthy and great is that we are allowed to try things and then learn from it and correct. So oftentimes that’s why you see, you’ll see one party win and then they lose two years later because
They
Get to try different things that they’ve been talking about, they’ve been thinking about, and then they get their answer pretty quickly. So it’s to me a little bit of the checks and balances that Trump got a pretty big answer to some of the questions that he’s had for many, many decades and many of his followers have had as well. So what we’re learning is it’s a different world. There’s a lot of factors at play and when you test things out, you’re going to get results a lot faster and then hopefully right the ship,

James:
The one question is though, where do they put their money? What economy is thriving right now? Most of ’em are not doing well, right? Chinese economy, it’s kind of overinflated, it’s padded up Europe’s economies, none of ’em are doing well, so where do you put the money?

Dave:
But people believe in their bonds at least, so they’ll put their money in Japanese bonds as a commonplace or the British bonds or Euro bonds because at least people feel like, I think there’s just growing confidence that they’ll at least pay their debt, whereas I don’t see any sign that the US isn’t going to pay their debt, but it’s a little less certain today than it was three weeks ago

James:
Because if China sold off, all their bonds are a huge chunk of ’em, they lose so much income that they won’t be able to replace in different bond markets. That’s detrimental for them too. I guess the real scary thing is they don’t really care as much as we do. Our consumers have this, anything happens and they freak out, whereas they just kind of keep moving.

Kathy:
Well, James, that’s what the article does talk about this article that basically says the nuclear option China could take, but why would they?
It was almost the same. Like I was saying, when the banks had to foreclose on so many homes back in 2008, they quickly learned that putting those homes back on the market all at the same time was you just can’t flood the market with a product and hope that the values are going to go up. It just doesn’t work that way. They go down. So it would hurt China too, so it’s not a solution. However, if it really turns into a full-blown war, just like any war, you do take some hits, you’re willing to take some hits to win. So just hopefully we don’t get to that point in every and the clearer heads will prevail.

Dave:
I’m just annoyed. It’s like there’s all this stuff, but we’re here trying to predict mortgage rates and we’re already trying to factor in what the fed’s going to do. We’re already going to try and figure out what inflation’s going to do. Then we have to think about GDP. Now we have to think about Chinese foreign policy. It’s like, come on, this is becoming ridiculous for trying to forecast what is supposed to be a very stable asset class of real estate,

Kathy:
But it is Dave, but it is because

Dave:
It still is

Kathy:
Here. We’ve been watching, and I hate to be so mean on my Instagram post, but I kind of like it at the same time as like, Hey, you know what? I’m sitting here as a buy and hold real estate investor and rents haven’t changed. My portfolio hasn’t changed, nothing has changed in the feki world as a result of all of this. Because I mean obviously we’re looking at deals, we’re looking at a storage unit build that the seller is trying to sell the land for 1.2 million. We offered 800,000 for the land because we had to add in the difference of tariffs. So it’s like, okay, we can work around this, but you’re going to have to sell your land for much less to make this work for us. So on construction, on flipping anything where you’re having to use construction materials that have tariffs on them and are more expensive, you’re going to be affected. But if you already own the properties and you’re sitting there buy and hold collecting rent, it’s been stable.

Dave:
Yeah, it’s totally true. I think rents will stay stable whether or not we see further downward pressure on prices, we’ll see. I don’t know what you guys think, but quickly, I think maybe a little bit more softness, higher rates and declining stock portfolios does have some impact, but not to affect where it’s going to crash and we’re going to see huge swings like we did in the stock market. That seems highly unlikely.

Henry:
The only thing I would think is that again, with such uncertainty out there in the financial markets and now this volatility of interest rates, it may slow down some people
From
Making the decision to go out and buy property, which could affect pricing in the long term if enough people decide not to buy during such a volatile time. But other than that, it’s pretty stable.

Dave:
All right, well let’s move on. I’ll actually go next because Henry talked a little bit about people maybe pulling back, and my story is related to that. We got two data sets that show that people, they’re not liking the economy right now. They’re not feeling good about it. The first thing that came out was consumer sentiment, which is a measure of just generally how people are feeling about the economy. And it is at the lowest point it has been since I think the end of 2022 when inflation was at 9% and it’s at the second lowest point in the last 10 years. So people are not feeling that. And then another measure of people’s expectations of inflation came out, and that is now at the highest level has been since 1982. It is higher than it was even when inflation was super high and they could be wrong about that. People might be a little more fearful than is realistic for inflation there, but there are studies that show that expectations of inflation actually do beget real inflation. And so I guess my question to you guys, one, what’s your sentiment? Let me just start there. James, what is your economic sentiment right now?

James:
I’m weird. I like chaos. I’m excited because I do think one thing I’ve kind of learned about consumers, especially the last four or five years ago, a little easy when they’re printing so much money and everyone was just kind rolling and then anything changes, people just lock up. So I don’t mind when I feel like we might be going into a deep end for a minute because there’s so many more opportunities, but do I think we have issues coming up? Yes, I do. I think that this summer is going to be not a great time to be selling properties because it slows down anyways. Rates could be higher tariff impact, there’s going to be issues in the short term.
But the thing about this, there’s always waves. They come and go and it’s all about being proactive and going, okay, what did I need to do to make those changes? If you’re nervous now and you have projects going on, audit your projects, what do you need to do differently? How can you change it up? How can you speed things through? But I do believe Trump and the art of the deal is we’re going to come out a lot better on the other side. I truly do believe that we’re going to get better trade agreements and he is coming in aggressive right now and it does not feel good for anybody, but people are already renegotiate. They’re starting to bring things back. I think it’s just going to be like a six month window of a little bit of pain and then it’ll be fine on the other side, but that’s the time to buy everyone. The pain painful times where you really don’t think you should be buying is when I have done exceptionally well and it’s uncomfortable, but just look at your processes and if you can make your processes work, it’s okay to buy in any market.

Kathy:
I agree. Anytime there’s uncertainty, there’s opportunity. I’ll just again say buy and hold. The fundamentals of that have not changed. There are still a record number of people who need to rent, who want a place to live, and that’s not going to change with tariffs. So there is a lack of affordable housing, and that’s the arena I play in is providing affordable housing to those who need it. And again, that’s not going to change

Dave:
Henry economic sentiment.

Henry:
I agree with James on the perspective that I think this is the time you want to be buying, but be smart about it. So the way I’m being careful is I’m buying properties that I know the majority of the current buyers want, so I’m staying away from things that are massive outliers. So super luxury, high-end flips maybe a different market that might be exactly what you should be buying, but in my market, that’s not what the majority of the buyers want. I can buy something on the lower end of the scale and then I want to buy them at a significant enough discount that I can weather a storm. I’m more cautious, but I’m still doing deals. I’m still accumulating properties, but I’m doing it with enough room in the deal for me to be able to pivot my strategy or for me to be able to exit that property at least two ways. I feel like if I can do that, I’ll be pretty safe.

Dave:
I’ll just say it. My economic sentiment is negative. I just think we’re going into a recession and if we’re not already in one, you just talk to businesses, you hear what people are doing, people are stopping purchasing, they’re halting hiring people, and that’s not showing up in economic data yet, but I think it’s going to over the next couple of months. As everyone said, a recession does not necessarily mean housing prices are going to go down, but I just think the economic sentiment that people are feeling is probably real. We’re probably going to see prices start to go up and there is definitely going to be some short term at a minimum pain in the economy. So I think we’re in for a rough 2025 if I had to guess. That’s not necessarily saying that about the housing market. I’m just talking about the economy in general. We’ll just have to see how this actually winds up turning out for individual investors for the labor market and all that. We’ll obviously keep you posted. We are going to take a quick break, but when we come back we have two more stories first about tariffs and how they might impact construction costs. Then we’ll also talk about how Zillow is trying to make listings more exclusive.
Hey everyone, welcome back to On the Market. We’re here with our headlines show. We’ve talked so far about China potentially mulling a nuclear economic option with the bond market, how Americans are souring on the US economy. Let’s James go to your story, which is about tariffs and the cost of construction. What have you learned?

James:
I’m learning a lot as every day goes by on costs and I think that’s really, really important. I think one of the biggest lies in real estate is the money’s made on the buy. It’s on the process right now. We have a floating target with tariffs. We don’t know what costs are going to do and it’s something that I’ve been digging into for the last seven to 10 days hard. So the article I brought in was tariff impacts on the cost of construction, and this was referenced off of a detailed Wells Fargo report kind of breaking down different types of constructions, cost increases and where those increases are going to be. And because I’m hearing some crazy things, people are talking about cost going up 40%
And that may be true, but that might be on a bolt that you’re putting inside your house. It’s not across the board on everything. And so I’ve been digging into this quite a bit, but the reason this article is valuable and has good information is it really breaks down what they think the average cost of construction or average cost is going to be even site. So for every new house getting built with the tariffs that are out there right now, they’re anticipating that the cost of construction will go up 75 to 8,000 to $12,000 per house for a new build, for a new build. And they were predicting that renovation costs would only go up eight to 12% in that time, which I actually a hundred percent disagree with. You think it’ll be higher? I think it’s going to be higher. Yeah. I think construction costs across the board for the last 12 months as far what we’ve seen is renovation costs have stuck more and new construction pricing has came down based on labor supply and other things, but it goes into the different areas of where the costs are going to be.
And this is what’s important. It talks a lot about appliances, HVAC equipment, metal, steel, because it tells you what to be buying, right? Because if my costs are going up, that’s going to be what it’s going to be, but I can buy different things or implement different strategies. It’s not to just assume a 40% increase, it’s also switch your plan up. We’re going through all of our projects right now. We have a lot going on. I think I have six or 7 million in construction going just on flips, not counting apartments and new builds properties that are getting all new HVAC systems with ducting. We are switching that up right now and we are going to mini split ductless systems because we can avoid that huge cost increase right there. Now, mini splits are also going up, but not the same as ducting. And one thing that the articles don’t talk about is the cost savings that’s happening too. I was talking to my cabinet company that we order over a hundred sets of cabinets a year from, he thinks their pricing and all their stuff comes from China is going to go up five to 6% after the tariffs hit because said his freighting cost is dropping dramatically right now,

Dave:
Even if tariffs stayed

James:
125%, his shipping costs he said has been cut in half.

Dave:
Wow.

James:
He said, people are pulling back and this is the information as investors, you want to know because that’s the quote you always get. You get a quote from somebody, you’re like, why is this so high? The tariffs or they’re going to say inflation, and you have to arm yourself with the right facts so then you can renegotiate that pricing down and you have to audit everything that you have in the pipeline. Now, anything we buy going forward, we can just adjust our pricing down and increase our budgets up. And so it’s just a really important time to audit what you’re doing right now and don’t get caught with your pants down in the middle. And so it’s all about being proactive right Now.

Henry:
I’m going to challenge you a little bit though, James, because most people probably listening to this show aren’t in a position where they’re having to buy in bulk and having to do the level of research that you are needing to do in order to make sure that you’re not going over budget. How does the normal person looking to flip a house or two a year, what should they be doing to understand how to underwrite a deal given the tariffs?

James:
Picking the simpler path? You can do a cosmetic renovation that it requires a lot less highest and best use. Might not be ripping out all the cabinets. It might be painting the cabinets. It might be buying your appliances from recycled places rather than brand new by American. That’s what I was doing right before this call. I was on the phone with my appliance supplier and going, Hey, what’s the brands that are the least effective by tariffs? And he’s sending me a list.

Kathy:
Amazing.

James:
And chop the clearance too because the clearance sales do work and you have to get a little bit of nitty gritty. And we had to do this in 2008 because the margins were not big, so we were grinding on everything and we were not buying a lot of volume back then.
We were doing two to three at a time for the investor doing one or two. It’s actually simpler when you’re doing volume, it’s much harder because you think you get this optimal pricing, but a lot of times you don’t. More you buy the more people charge you. And so go in, what do you need to do? What can you salvage is a big thing. What can you replace instead of changing the whole floor plan around can you leave your current system with the current ducts, then you have to replace the furnace only. It’s about the plan that you’re trying to put in, whether you’re big or small, it all comes down to that plan. And so shop the clearance. And then we’re also buying up materials. Today I order 10 sets of kitchens that I’m not ready for and I’m not going to be ready for eight to 10 weeks. But we bought ’em on today’s pricing. We bought flooring on today’s pricing for 10 houses, whatever houses that you have, buy your materials today. That way you’re locked in, buy out the materials,

Kathy:
Unless you’re putting it on a 30% interest rate credit card, then maybe you just should wait.

James:
That’s true. Very valid. Very

Dave:
Valid. Yeah, right. That’s true. Yeah, I think that’s great advice, James, about adjusting the scope of work and what you’re trying to do. Yeah, things are going to get more expensive and it’s hard to know what is going to get more expensive and to what degree at this point, we just don’t know. But I’m just curious what advice you would give to Henry’s point. It does feel like we’re going into this time where material costs are going up, and I’m not saying the market’s going to go down, but I don’t think we’re going to see some huge appreciation in the housing market over the next couple of months. So does that increase risk? James, you have a very sophisticated business, but for an average flipper, does that increase risk? Right now

James:
It does unless you’ve already bought it out and committed. Because if you’re on a general contracting contract and they’ve hard bid that kitchen, it’s the contractor’s risk, not yours. That’s why we only do fixed bids, get fixed bids on things, not materials plus time. And the other thing is renegotiate. You know what else is cheaper right now? Gas, they’ve been charging me more on labor for transporting. Look at the whole picture because it allows you to renegotiate. If there’s more expensive materials, there’s less construction going on. So therefore labor will come down and you have to negotiate it.

Henry:
And this is the time where investors who are doing those smaller projects are just one or two projects a year. If the contractor has hard bid that already, this is the time when you need to be going in and ensuring that the products that they’re using are the same quality products that they bid and they’re not going out and sourcing cheap stuff and you’re paying premium prices for it. So you got to pay attention to what they’re putting in

James:
And don’t do specifics on specs. That is a killer in this market. It’s close enough. Hey, I want this appliance set and I want it to be in this range right here. What do you got the best deal on? I want this floor and it needs to be a half inch and it needs to be this color scheme, but what can you get the best deal in close enough specs? We’ll cut your price way, way down.

Dave:
Alright, well that’s very good advice for people. We do have to take one more quick break, but when we come back, we’ll talk about Zillow’s move to make real estate listings more exclusive. Stay with us. Welcome back to On the Market. I’m here with Henry, James and Kathy talking about today’s biggest headlines. We’ve covered the tariffs, we’ve consumer sentiment. Now, Henry, tell us what Zillow’s up to.

Henry:
So my article is titled Zillow’s Fighting Back Against a Push to Make Real Estate Listings more Exclusive. And so what they’re essentially doing is in April they introduced a policy that mandated that any home publicly marketed, be it through yard sign, social media or brokerage website, must be listed on the MLS and made publicly accessible within one day. So this move is targeted to counteract practices that a lot of agents practice and brokerages practice, which we like to call pocket listings. And so what they’re saying is we want to make sure that every home is marketed to as many people as possible, and I think that’s how they’re marketing this strategy, but to me this is just a play so that they can get commissions on every listing that goes out there. Oh really? You

Dave:
Don’t think they’re just doing this to bring access to the people?

Henry:
This is for the people. The people need our help. And I think investors need to be careful, and I think pocket listings are a common practice and they have a name, but there’s a reason that pocket listings are pocket listings.
If agents thought that a property had the best chance to sell for the most money by listing it, they would. So a lot of the times these properties don’t get listed for all kinds of reasons. Some of those reasons are that the seller really doesn’t want it listed on the MLS right now. And so realtors have the option to still try to help that seller unload that property by marketing it to specific people who they think might be interested in this kind of property versus putting it out there for the whole world to see. And a lot of the times, if you have a property, as an example, I had a property that only an investor was going to buy and we decided to put it on the MLS just to see is there a buyer out there that would buy this property that needs a ton of work even at a discount?
And the kind of feedback that we got from people, they clearly didn’t understand that it wasn’t for them. Like this house isn’t for you, it’s for a specific person. It would’ve been much better marketed as a pocket listing than putting it on the MLS because your traditional buyer just, they’re not going to be able to do that kind of a project. They’re so put off by that kind of a home. They weren’t so mad at me for listing the property and then wasting their time because it wasn’t a property for them. And I think that buyers should have the option for their home tickets sold in the way that they want to sell it. It’s your property. I think that when these things get jumbled together and talked about in this way, it makes it sound like agents have been shady hiding these pocket listings only for the best of us what’s happening,
But that’s how they’re trying to play it so that people are forced to put everything on the MLS where they can go get a commission on it. The word that’s being used here, I think is a correct word. There should be transparency, but the transparency doesn’t have to mean that we have to put the property on the MLS. The transparency falls on the agent or the broker to communicate to their seller the trade-offs of the decision they’re making. If we list this, here is the potential outcomes. If we don’t list it and I market it as a pocket listing, here are the potential wins and trade-offs and things that can go right or that can wrong. The transparency does need to be there, but it should still be up to the seller to decide the route that they want to take.

James:
Totally agree. I think the whole regulation on pocket listings is the biggest joke. Its dumb. The second biggest lie in real estate,

Dave:
It’s so silly, right?

James:
Let’s just break why pocket listings do work. Because when you’re delivering an exclusive thing to somebody, they feel special and they will pay more.

Henry:
They’ll pay more.

James:
Because I buy more properties on market than off market. I don’t buy 99% of the wholesale deals that get sold into my market and they get sold higher than they would trade for on the market.

Dave:
Wait, I’m just realizing I’m that sucker. I buy a lot of pockets, but

James:
It really just depends on the deal source and what it comes down to is, as a seller, do you trust the person that you’re working with, that they are doing what they’re supposed to be doing to get you the best possible term on your deal?

Dave:
Man, all these potential changes to the way listings are done, it doesn’t feel like every three months some new story comes out about this and nothing ever really materially changes. There’s always these things like Zillow’s doing this and NAR is doing this, and it’s like, does any of it matter?

James:
Well, two years ago, Zillow was buying all off market properties. Hey, contact Zillow, getting off market, we’re going to give you the best number, right? They’re just trying to figure out the magic way to make money and they haven’t figured it out yet. I mean, they’d make plenty of money, but they’re trying to figure out that next step and they just keep guessing and changing the message and all you’re doing is confusing people,

Henry:
I don’t know, just try to get them estimates a little more accurate. That’s probably what they should focus on.

Dave:
Estimate is the most universally hated thing, I think, in the entire real estate industry. Alright, well, thank you all so much for being here, James, Kathy, and Henry. We appreciate it. And thank you all so much for listening to this episode of On The Market. If you guys have any other takes, any strong opinions on any things we discussed today, if you’re watching on YouTube, please let us know in the comments. I read pretty much every one of them and I would love to hear what you guys are thinking or you can hit any one of us up on BiggerPockets or on Instagram or other social media. Thanks again. We’ll see you next time.