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TOP STORY

Reports are that the White House and Wall Street are increasingly worried about stagflation, the least sexy of the ‘flations. Unfortunately, no one accidentally added Briefcase to a private Signal chat of key decision-makers, so we are going to have to do this one the old-fashioned way.

So let’s go. In the world of real estate, uncertainty is often worse than bad news. And right now, the word that’s sending chills down the spines of both Wall Street and Main Street is one that hasn’t trended since the 1970s.

Stagflation.

That toxic brew of stagnant economic growth and elevated inflation is no longer just theoretical. It’s becoming increasingly difficult to ignore the signs—and for real estate markets, it’s a particularly dangerous combination.

“I haven't heard that term in years,” President Donald Trump told reporters on March 31. “I don't know anything about [that]. This country is going to be more successful than it ever was. It's going to boom; we're going to have boom town USA.” That optimism stands in contrast to what the data—and economists—are saying.

The term “stagflation” might evoke images of gas lines and polyester suits, but today’s version could be just as economically stifling. Richard Clarida, former vice chair of the Federal Reserve and now a global economic advisor at PIMCO, told Bloomberg last weekend that “we already have at least a whiff of stagflation right now.”

He added, “Inflation mechanically will be moving up with the tariffs,” and warned that the Fed is unlikely to act pre-emptively under current conditions. “It’s a different set of conditions now,” Clarida said, noting the contrast to 2019 when the Fed cut rates to stave off a slowdown, but inflation was far lower than today.

The Federal Reserve’s preferred inflation gauge, the Core PCE, has ticked up to a 2.9% annual rate and is expected to remain at that level for much of the year, according to a CNBC Rapid Update survey of economists. At the same time, GDP growth in the first quarter is forecast to come in at just 0.3%—a sharp drop from 2.3% in the previous quarter and the weakest showing since 2022.

“A slower pace of growth, sticky service inflation and the current trade shock are creating the conditions for stagnation," wrote Joseph Brusuelas, chief economist at RSM US.

For the real estate sector, stagflation presents a uniquely difficult challenge: demand slows, costs rise, and interest rates stay high. The typical playbook—rate cuts to juice demand—becomes harder to execute when inflation remains stubbornly above target.

In residential markets, rising borrowing costs have already pushed many buyers to the sidelines. If economic growth stagnates, job losses or weaker wage growth could further sap consumer confidence and affordability. Builders, meanwhile, face higher input costs thanks to new tariffs, especially on imported materials like lumber, steel, and aluminum.

As Clarida noted, tariffs' inflationary impact “mechanically” pushes prices higher, and that pressure hits housing directly.

Barclays recently noted over the weekend that “signs of slowing in hard activity data are becoming more convincing, following an earlier worsening in sentiment.” Real consumer spending, for example, fell -0.6% in January and rose just 0.1% in February, per the Commerce Department—a worrisome trend in a sector heavily dependent on consumer confidence.

The University of Michigan’s consumer sentiment survey has dropped for four consecutive months, and the average expectation for inflation over the next year surged to 5.0% in March—up from 4.3%. More troubling for real estate investors: two-thirds of Americans expect unemployment to rise over the next year, the highest reading since 2009.

Much of the current economic drag is being tied to the Trump administration’s aggressive trade policy. According to CNBC, the new round of tariffs has already distorted GDP readings as companies rushed to import goods ahead of their implementation. The result? A one-time surge of imports (which subtracts from GDP) and fresh inflationary pressures from more expensive goods.

“Given the mounting global trade war...there is a good chance GDP will decline in the first and even the second quarters of this year,” warned Mark Zandi of Moody’s Analytics. “And a recession will be likely if the president doesn't begin backtracking on the tariffs by the third quarter.”

While the Federal Open Market Committee recently left interest rates unchanged, it revised its GDP forecast for 2025 from 2.1% to 1.7% and raised its inflation outlook to 2.7%. Chair Jerome Powell acknowledged that the inflationary impact from tariffs accounted for a “good part” of the revised forecast. However, the base case is that these effects would be “transitory.”

Still, Powell added that economic uncertainty is “remarkably high”—not exactly a confidence booster for housing investors.

For real estate professionals, developers, and investors, the stagflation outlook creates a foggy forecast: will inflation push borrowing costs even higher? Will consumer demand weaken further? Will housing construction slow under the weight of rising input costs and weaker margins?

Torsten Sløk, Apollo's chief economist, summed up the stakes: FOMC members are increasingly concerned about “upside risks to unemployment and inflation.” In other words, the Fed worries that this stagflationary moment may not be so fleeting.

The last time the U.S. faced stagflation, mortgage rates eventually soared into the teens. While no one is predicting a return to 1981’s 18% rates, the modern version of stagflation could still wreak havoc—especially for a housing market already walking a tightrope.

As the economic data continues to tilt in an ominous direction, the real estate sector will be watching the Fed, the White House, and consumers with growing apprehension. In a market that thrives on confidence and clarity, stagflation offers neither.

While the president may be promising “boom town USA,” the numbers—for now—suggest we may need to prepare for something less headline-friendly: a real estate market stuck in neutral, with inflation jamming the gas pedal.

SNIPPETS

1️⃣ Millenials Be Like: While Gen X and baby boomers continue to see modest gains in homeownership (Gen X rising from 72% to 72.9% in 2024), millennials are experiencing a significant pinch. The millennial homeownership rate has plateaued at 54.9% in 2024, ending a growth trend that has been consistent since 2012. The primary culprit? Prohibitive market conditions, with the typical monthly mortgage payment hitting a record $2,800 and interest rates lingering between 6-7%, effectively pricing out many younger potential homebuyers. This stagnation (the second worst of the stags 👆) suggests potential opportunities for investors in rental markets and signals a continued challenging entry point for first-time homebuyers in the near term. (Globe St)

2️⃣ Down Payment Daze: According to a Realtor.com report, the typical down payment reached $30,250 in Q4, which, while slightly decreased from the previous quarter, still represents a significant $3,000 increase from late 2023. For the entire year, buyers averaged a down payment of $29,900, representing 14.4% of the purchase price—the highest recorded since tracking began. This trend indicates a 3.4 percentage point increase compared to pre-pandemic (2019) levels, suggesting that potential homeowners adapt to higher upfront housing costs by bringing more cash to the closing table. (HW)

3️⃣ Speaking of Broke: Households' ability to cover a $2,000 emergency expense is at its lowest point since 2015, and when adjusted for inflation, the situation looks even more challenging. With the Consumer Price Index (CPI) now 35% higher than in 2015, this data suggests potential financial strain among potential renters and homebuyers. This trend could translate to increased housing affordability challenges, potentially affecting rental demand, mortgage qualifications, and overall real estate market dynamics. (Apollo)

4️⃣ At Least The Violinists Are Still Playing: President Trump’s newly announced “Liberation Day” tariffs impose a minimum 10% tax on most imports and 25% on vehicles, aiming to boost American manufacturing but potentially raising costs across the board. For housing, these tariffs could increase construction expenses—by as much as $10,000 per new home—due to higher prices on imported materials like Canadian lumber and Mexican drywall. This could worsen affordability in an already tight market. Meanwhile, the inflationary pressure from tariffs may keep mortgage rates elevated. (Realtor.com)

5️⃣ Ka-Ching Calculus: Median household income in major cities now stands at $74,225, with middle-class income ranges varying dramatically from $25,384 in Detroit to $280,438 in Arlington, Virginia. Top-tier markets like San Jose, Irvine, and San Francisco demand hefty earnings, with median incomes above $120,000. At the same time, states like Massachusetts, New Jersey, and Maryland have the highest middle-class income thresholds. Conversely, states like Mississippi, West Virginia, and Louisiana offer more affordable living costs with lower middle-class income ranges. The data suggests significant regional disparities and presents opportunities for investors to strategically target markets with growing median incomes, emerging middle-class populations, and potential real estate appreciation. (Smart Asset)

6️⃣ Getting High On No Supply: The median monthly mortgage payment has hit a record high of $2,807, up 5.3% year-over-year, driven by rising home sale prices (3% increase) and persistently high mortgage rates around 6.67%. Despite these challenges, the market shows signs of life, with mortgage-purchase applications at their highest since February, home tours increasing, and new listings up 7.5% - the biggest jump in 2025. Interestingly, some buyers are finding negotiation opportunities, with homes selling below the asking price due to market caution. While pending home sales are down 4.6% year-over-year, the potential decline in mortgage rates and increased listing inventory could signal market improvement in the coming months. (Redfin)