Will These Tariffs be Inflationary?

Welcome to the Skeptical Investor Newsletter. A frank, hopefully insightful, dive into real estate and financial markets. From one real estate investor to another.

Today, we’re talkin’ are tariffs actually inflationary? I had a surprising revelation.

And we do a housing market update, review the positive jobs surprise, and I pontificate on all things housing and the direction of interest rates.

Let’s get into it.

As the olde country song Country Boy Can Survive goes…

"The interest is up and the stock market's down….”

But, things are a changin’ Mr. Williams Jr.…

In just the last 30 days, rates are down .15%, and last week they had been down another .14% to 6.67%, before interests pivoted from the war in Iran and Israel back to potential tariffs.

As I said a few weeks ago, with inflation now close to 2% and a labor market that is showing signs of waning, the bond market is starting to do the Fed’s job for them, albeit slowly, amidst all that is happening in the world. The 10-yr treasury bond has crept down to 4.421%, which mortgage rates track. And was down even more.

I expect it to continue its one step back, two steps forward routine, edging slowly down, for the rest of 2025.

To date, the Fed’s argument to the public has been that they can’t lower rates because of uncertain tariff policy, which could be inflationary.

Hey, I can’t blame someone too much for being skeptical. But so far, that has not been the case.

And I must admit, I have a confession to make. After much rigor, back and forth, consternation, and effort to resist all things political, I have changed my mind.

I am now skeptical that tariffs will become inflationary.

I know, I know. I can’t wait to see the hyperbolic, politicking hater emails I’m going to get this week. But I do think this is the most intellectually honest way to look at the current tariff discussion (of course, this can change, especially with this President). But for now, I am fairly confident.

Why?

Since announced on April 2nd, many reasons. But I will start here: tariffs have brought in $300 billion, up from ~$80 billion a year ago (annualized, Treasury).

And since then, the inflation rate has decreased to 2.3% (the Fed’s preferred measure PCE, BLS).

For me, the discussion on tariffs comes down to these three features of tariffs.

I believe this to be a more accurate way of framing the current tariff risk and its potential effect on my portfolio. Why is this important? It means bond buying will continue, lowering interest rates, regardless of the Fed’s actions. Not the opposite. This is not political. I use this to forecast my investments accordingly.

So, where does that put us?

Interest rates are starting to do the itsy bitsy spider, labor market is playing freeze tag, and I am on my third cup of coffee.

It’s a great time to be liquid, raise some cash, gather your money…

…and make some damn money.

Get it? Got it? Good.

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Fortunately, real estate transaction activity is picking up, albeit from a low base. Market activity is up in 2025, painting a more positive picture for the summer market.

Housing inventory on the market is creeping up, still not back to pre-2019, but it’s the best number we’ve seen in 5 years, just passing 2020 housing inventory levels.

In almost 50% of the 50 largest metro areas, there are now more homes for sale than there were before the pandemic (realtor.com).

Good!

Again, inventory is up in many markets, but still down / flat in most. And notice that the markets seeing increased inventory are highly desirable areas to live. Remember, real estate is always about Location. Location. Location. These areas will still be fantastic markets to invest in. Real estate is a market. And like all markets, they cycle.

Hell, Amy Schumer just slashed $1.25M off the price of her Brooklyn townhouse. (although she is still netting $500k since buying in 2022, so don’t shed any tears). It’s time to pick up a deal, son!

I do love her rustic kitchen; this is my vibe.

But I’m not a fan of the prisoner shower. Better get some soap on a rope, gents.

In short, this is progress towards a healthy, normal market. We need inventory to normalize, and we aren’t normal yet. A 2-2.5 million market inventory is the historical norm, so if we can approach 2 million, the market will feel normal rather than tight. Affordability would begin to relax as well, as choice suppresses home price appreciation (likely not price decline, but price disinflation, of course, this is market-specific). Inventory still has a ways to go for more than half of major cities, but at least it is out of its meek, gothic phase.

Anecdote: My Skeptical Investor community is not seeing inventory come through to investors as deal flow. I’m just not seeing a plethora of value-add properties available. Especially in growing C+ to B + class neighborhoods. Neither single-family nor small/medium-sized multifamily properties. There is still plentiful demand, circling too little supply. When rates drop to the 6s and 5s, investors are going to descend like Attila and his Huns on the existing home residential real estate market inventory. I am front-funning that demand in my business, and am actively looking for my next deal (Have a deal? Send it to me, I pay handsome referral fees).

On housing, we should be skeptical of the activity numbers for May, up .8%. We are in the second busiest season (summer), but as of yet, there are not enough strong demand indicators. The result? Real estate inventory is likely to continue higher, hopefully providing more/better choices for investors.

Counterpoint: we still have a record number of homeowners (71.3%) with awesomely-low interest-rate mortgages who won’t sell/move until they can buy again with a lower rate.

Would you sell if you had a 4.5% interest rate? Hell no. Only if you had to.

The mixture of homes on the market will continue to skew to newer homes, rather than existing homes (aka fewer value-add homes for investors to gobble up).

All this being said, we should be skeptical of the doomers in the press and online “experts” saying home prices will fall. Don’t believe the hype. And don’t just take my word for it. The Chief Economist for RedFin, Daryl Fairweather, thinks so.

Prices should continue to rise (but not always, keep reading). Yes, price data may be volatile because 1) suppressed activity from tight Fed Policy (ie, continued high rates) and 2) in certain geographic areas with local dynamics at play (a big one is new apartment supply falling off a cliff right now).

How have the last 30 years gone (ResiClub)? Up 300%.

Of course, home prices could go down. But so what? We have had one price crash in my 42-year lifetime, and that was the Great Financial Crisis. And even if you bought into that weakness, you are pretty happy today. Moreover, 2009’s economic factors are not present today. All markets cycle. Fear and loss aversion are powerful human emotions. Successful investors can separate the signal from the noise.

Case in point, back in the 2006-2012 timeframe, inventory skyrocketed, depressing home prices. Today, we are at 4.6 months of inventory. Which, as you can see, is a historically normal level (Mohtashami).

Keep calm and carry on.

The Fed won’t cut in July unless the labor market weakens. And, the latest jobs numbers were pretty good.

In June, the US economy added 147k jobs, the previous month was revised up +16,000 jobs, and the unemployment rate actually ticked down to 4.1% (BLS). This, after unemployment had slowly risen for the last year and a half, albeit from a low base. I am keeping a skeptical eye on it. So far, the trend is still a slowly weakening labor market. This is likely just some volatility in the data. But a positive economic outlook nonetheless.

The good news: We are still at “full employment” (normally defined as sub-5% unemployment). Parsing out construction employment, we still see a healthy market up YoY.

Falling construction employment usually precedes recessions.

Anecdote: State and local government added +73,000 job gains, which led all job categories, accounting for half of all job gains. Wow. Why?

In other words, so far, no cause for concern. Unless you are trying to buy a house at 7% interest! Well, it’s mom’s basement for another 6 months for you Jimmy.

**Tangent**

You know what I find myself thinking more about? The next decade. And not just real estate. This world is about to be wildly different. Just wrap your noggin around this:

There will be seismic political shifts in geopolitics, upending a generation of rulers, and allowing a new generation of thinkers. I am hopeful the next generation in these tough countries will be more caring.

What will the world look like in 10-15 short years?

But I digress…

Probably not.

The single most important part of real estate is finding a deal. I can’t find you a deal. You gotta find a deal. I can tell you how to go about it, but in the end, you have to do it. Your mentor / coach / guru can’t do it for you.

Hot Tip: Can’t afford to take down a deal by yourself? Go find a deal and bring it to an investor! That is the single greatest way to get into the game. Just find a way to add value to someone. And hell, if you bring them a few, maybe they'll cut you in on the deal. I would.

BUT if you think you must. You can Consult with ME.

Don’t overpay. Don’t buy an expensive course.

Get professional advice from someone who owns, manages, and brokers real estate.

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No BS. No fluff. No Gurus. Only results.

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Call me now.

Remember: I’m not your guru, I’m your guardian. I’ll keep you out of trouble and fill your jet with fuel so you can take off on your own.

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Ok, back to business.