Inflation Boomerang

What do the Tariffs mean for Real Estate Values?

Here are some figures to keep in mind from April home sales in Palm Beach County (other areas were similar). And I’m going to give you a teaser for the end of this JJ article. Watch for a real possibility of prices that may boomerang upward toward the 3^rd and 4^th quarter and into 2026.

Closed sales were down from April, year to year, -9.4%. Pending Inventory was down -13%. Active inventory was up 29.3%. Months of supply of inventory was up 41.8%. Prices rose 3%, staying up with inflation over the last year. The pending inventory drop might have been heavier in the second half of April as we noticed a shift around April 10^th. And think about this. We were already at historic lows for home trading. So here are some thoughts on what this might mean (prices are down more than you think and might have hit bottom) with some background context….

During the pandemic the golden ticket was to live in a country club. It was not because of the luxury social parties & hobnobbing with fellow well-to-do’s. Or the mahjong games in the members only card room. Or bagels with the boys in the morning. No, it was toilet paper. I remember a Facebook post with someone smiling when her toilet paper was delivered to them in their country club. Damm – I was jealous and everyone knew that was the place to be. Different products went way up in price, depending on supply and demand. I remember gasoline on the other end of the spectrum cratered at $1.79 a gallon.

Real estate at first just stopped. But then a funny thing happened. It took off for people wanting to escape to Florida with low rates and lots of money flow.

Going back in time and thinking about another weird market….I made a series of calls in the early fall of 2005 that raised some eyebrows of my listing clients. I told them that they should consider raising the price. Every Seller has a different goal. Despite what I talked about recently, every Seller is not looking to “give it away”. Some are “Must” sellers and really do need to do it, to stop the carrying and lost opportunity costs. But others are just looking for a high price. The five or six Sellers I called were those “want Sellers” whose only goal was to sell high. Back in 2005, South Florida was more snow birdy than it was today. Those homes are very iffy on moving over the summertime. Appreciation was so hot and heavy in 2005 that the real price of their home had gone up. One client said to me “ in all my years, I’ve never had a real estate agent tell me to consider raising the price”!

One Buyers agent and their client who were lollygagging looking at the house were super perturbed at me raising the price on them, But sure enough, we had an early fall season, and the house moved at the new full price in a bidding war. The lollygagger came around and paid the new price.

We are certainly in a strange time right now. With the tariffs taking hold, the auto market has been sizzling with people trying to purchase before the old inventory goes away. The first quarter of this year saw negative GDP because of US companies buying up extra inventory. Walmart, Target and basically everyone has come out and said price increases are inevitable. In a capitalistic marketplace, that is what happens.

Inflation is going to hit in June. It’s not on everything including services. But we buy a lot from abroad and domestic producers will raise prices if they can as well. Auto parts, avocados, coffee, apparel, and countless other products to name just a few. Many consumers will tighten their spending belt as a result. However, with tariffs at a minimum of 10%, it will trickle down to add more inflation than what we have had.

So, what does that mean for real estate? Here are eight thoughts we are seeing at street level to keep in mind as possible outcomes….

1. Well first, there are other factors. Interest rates should drop sufficiently because of less demand but with inflation higher, Powell will probably hold firm. And because of the 10-year yield, they might move up based on the strength/weakness of the dollar. We’ve seen that in recent weeks.

2. Now, home prices historically go up 4-5% a year assuming we have nearly 3% inflation. However, inflation should uptick higher than the 2.5% we have been at.

3. Uncertainty from tariffs could tick up unemployment and businesses will curb spending and investment. This could cause a contraction of consumer spending. This contraction could slow down activity in the real estate sector.

4. Prices will remain stagnant with some of the must sellers of subpar prices even going lower over the offseason. March and April saw a giant amount of price changes in Florida.

5. Builders will halt speculation builds and consumers won’t pay higher prices that builders will need to pass on. Resales can undercut them if there is too much of a jump in prices. Keep in mind that we are already short an estimated 4 million homes in the United States. Which means that the number will grow!

6. Low mortgage rates with many below 4% would keep foreclosures at a minimum. We don’t have fraudulent home loans and adjustable arms as well.

7. Price changes have already occurred. Realtor.com said Florida regions had 9 of the 10 most markdowns. Prices have already adjusted and we are now seeing some sales pick up at street level.

8. If homes don’t go up with the 4-5% inflation (they historically should be 1% more) then the average current homeowner really could be taking an estimated loss or deflation of their home year over year because they haven’t pegged that price and raised the price of their home each month.

Numbers 7 and 8 are key. The long answer I think is that there will be boomerang catch up – to make up in real estate inflation for the real deflation that is occurring right now. Home sellers who will not be raising/pegging their home prices to match the new inflation that is happing now.

All sorts of products are going up in price because of inflation. That is why there has been so much hoarding. Except real estate where prices have been dropping. The laws of supply and demand and the free market will figure this out (not right away because of the emotional part of selling) and a reversal should happen at some point. Since real estate prices should probably now be inflating just to keep up with the real inflation market, your home might at the moment be a depreciating asset. Don’t worry though, these are just snapshots in time. Even when homes do start to go up to match inflation, you aren’t really making money, just keeping up with inflation.

The advantage that a buyer must think about is their upper hand today. They have lots of choices to consider and prices are NOT going up with inflation. This is a good market for a Buyer to flex their purchasing power in. The danger is that if Buyers wait too long to pull the trigger, the marketplace will adjust, thus prices could go up fast in the fall to stay even with inflation with less options available. Eventually, for Buyers, the paper on that toilet roll runs out!