Tariffs, Trust, and the Cost of Capital

The Signal Beneath the Noise

Serious operators obsess over the next print, but my podcast/YouTube guest this week, Bankrate senior economic analyst, Mark Hamrick, argues the industry is missing the structural signals that actually set the cost of capital and shape demand.

 

Start with this premise: Data credibility is a macro variable.

 

When the quality of national jobs and inflation statistics is questioned, it is not just an esoteric Beltway quarrel; it becomes a pricing input for Treasuries and, by extension, mortgages, construction loans and exit cap rates.

 

As Hamrick puts it, the path to good decisions for households, enterprises and policymakers ‘is lined by high quality economic data, most of which is generated by the federal government.’

Hamrick’s concern is not theoretical. He links the chain plainly: if markets doubt the numbers guiding the Federal Reserve’s dual mandate, you can ‘envision a scenario where there’s less demand for our Treasury debt,’ forcing higher yields to clear supply – an economy‑wide tax that lifts borrowing costs from mortgages to autos and narrows the Fed’s room to maneuver.

 

What Happens If Trust Erodes?

The near‑term catalyst for this anxiety is unusual: the Labor Department’s head statistician was fired after unfavorable revisions, and an underqualified nominee has floated ideas as extreme as not publishing the data at all. Hamrick’s advice for investors and executives is simple: pay attention. This may not break the system tomorrow, but it introduces risk premia where none previously existed.

 

Through a real estate lens, the translation is straightforward.

 

Underwriting already contends with volatile inputs on rents, expenses and exit liquidity; add a credibility discount on macro data and your discount rate moves against you. Prudent sponsors should stress‑test deals for a modest upward shock in base rates – an echo of Hamrick’s ‘economy‑wide tax’ – and consider how thinner debt markets would propagate through construction starts and refis.

 

Housing’s Lock‑In: Inventory, Not Prices, Is the Release Valve

The ‘lock‑in effect’ remains the defining feature of U.S. housing. Owners sitting on sub‑3% mortgages are rationally immobile, starving resale inventory and suppressing household formation mobility, a dynamic Hamrick equates with today’s ‘no hire, no fire’ labor market: stable but sluggish churn. Builders fill some of the gap, but affordability remains constrained by national price firmness and still‑elevated mortgage rates relative to the pandemic trough.

 

What happens if mortgage rates dip to 6.25% or even 5.5%? Don’t expect a binary ‘unlock.’ Hamrick argues for incremental improvement rather than a light switch: lower rates would expand qualification and appetite gradually, and, crucially, free inventory. He is less worried that cheaper financing simply bids up prices; the supply response from would‑be sellers is the more powerful margin effect.

 

For operators underwriting for‑sale housing (build to rent or single-family home developments), the tactical read is to focus on markets where latent move‑up sellers dominate and where new‑home concessions currently set the comp stack. He also reminds us of the persistent, national‑level truth: prices have been unusually firm for years; in the U.S., homeownership is still the primary path to wealth – advantage owners, disadvantage non‑owners.

 

Wealth Transfer: Inequality In, Inequality Out

The widely cited $84 trillion Boomer‑to‑GenX/Millennial wealth transfer via inheritance won’t repair the middle class. It will mainly perpetuate asset inequality: assets beget assets, and the recipients most likely to inherit are already nearer the ‘have’ column. That implies continuing bifurcation in housing demand (prime school districts, high‑amenity suburbs) alongside a renter cohort optimizing for cash‑flow goals rather than equity growth. For CRE, that supports a barbell: high‑income suburban nodes + durable rental demand where incomes grow but deposits lag.

 

Renting Without Shame and the Budget Reality Check

Hamrick is refreshingly direct: there is no shame in renting as, perhaps, there used to be. For many households, renting is a rational bridge to other financial goals; build emergency savings, avoid surprise home maintenance expenses, and keep debt service from getting ‘too far out over your skis.’

 

For CRE owners, this fortifies the case for professionally managed rental product with transparent total‑cost‑of‑living and flexible lease options. For lenders, it argues for cautious debt-to-income ratios and expense reserves in first‑time buyer programs.

 

Tariffs, Inflation, and the New Dashboard

Hamrick closes with a monitoring list to stay on top of dominant economic trends: labor market strength (monthly employment; weekly jobless claims), the inflation complex (Consumer Price Index (CPI), Producer Price Index (PPI), and Personal Consumption Expenditures index (PCE)), and the full housing tape (mortgage rates, existing/new sales, builder confidence, starts) plus, of course, one political‑economy input now impossible to ignore: tariffs, with the effective rate at the highest level since the Great Depression.

 

For CRE, tariffs are not an abstract: they seep into materials costs, fit‑out budgets, and the headline inflation path that steers the Fed. Sponsors should build tariff scenarios into Guaranteed Maximum Price (GMP) contingencies and model procurement alternates.

 

Actionable Takeaways for CRE Professionals

• Price a credibility premium: Run sensitivities for higher Treasury yields if data trust wobbles; Pay attention to how easily the government can sell its debt and the extra yield investors demand on longer bonds. Both shape interest rates, which then filter into real estate cap rates.
• Underwrite inventory elasticity, not sticker shock: As rates ease, model inventory release ahead of price spikes; focus on submarkets with pent‑up sellers.
• Lean into renting’s rationality: Product that aligns with household cash‑flow priorities will capture durable demand while affordability resets.
• Track tariffs as a construction line‑item and macro tailwind to inflation: Feed this into budgets and hold periods.

My conversation with Mark really brought home how connected real estate is to the bigger capital markets picture. If you want a sense of where cap rates are heading, keep an eye on the bond market – because that’s where the story starts.

 

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In this series, I cut through the noise to examine how shifting macroeconomic forces and rising geopolitical risk are reshaping real estate investing.

 

With insights from economists, academics, and seasoned professionals, this show helps investors respond to market uncertainty with clarity, discipline, and a focus on downside protection. 

 

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