What's happening in the economy right now, and what it means for real estate

Site Lines by Rami Al-Kabra
What's changing on the Eastside, explained by someone who helps shape it.

A few things have converged in March 2026 that, taken together, tell a pretty clear story about where the real estate market is headed. None of them are being connected to housing in most of the coverage. They should be.

The most immediate is fuel. On February 28, the US and Israel launched military action against Iran. Iran responded by effectively shutting down the Strait of Hormuz, the waterway through which roughly one-fifth of the world's oil supply normally moves. The national average for diesel has surged to levels not seen since Russia's invasion of Ukraine in 2022. Gas prices nationally have followed, though drivers in the Pacific Northwest are already paying well above the national average at the pump.

Diesel is the number that matters most for construction and housing. It powers the trucks that haul lumber and concrete, the equipment running on job sites, and the freight networks moving finished goods. Accounting and consultancy firm RSM US estimates that for every 10% rise in diesel prices, headline consumer inflation increases by about 0.1%. At the scale of the current spike, that could add nearly half a percentage point to the next inflation reading. Major shippers including UPS and FedEx already carry fuel surcharges. The US Postal Service is now considering adding one.

Fuel costs also hit construction materials in a second way. Some materials, particularly steel, require significant energy to produce. Higher energy prices raise the cost of making them and the cost of moving them. That's two hits on the same budget line.

And diesel isn't the only cost pressure builders were already absorbing before the war started. According to the National Association of Home Builders, roughly 60% of builders had already seen cost increases due to tariffs on lumber, steel, gypsum, and other building materials before the Strait of Hormuz closed. Following a Supreme Court ruling that struck down broad tariff authority, the administration implemented a new 10% global import tariff. Builders who were already dealing with tariff-driven cost increases are now absorbing a fuel shock on top of it.

The bond market is reflecting all of this. Inflation expectations, as measured by the gap between standard Treasury bonds and inflation-protected securities, have climbed sharply and are now running well above their long-run average. That signals investors are bracing for sustained cost pressure, not a temporary spike.

Mortgage rates move in close relationship with the 10-year Treasury yield. When the yield rises, mortgage rates follow, typically running one and a half to two percentage points above it. The 10-year yield has been climbing steadily through March. Mortgage rates are currently in the mid-to-upper 6% range.

What makes this harder to navigate than a simple rate environment is the jobs picture underneath it. February's employment report, released before the war started, showed employers cutting nearly 100,000 jobs. That was one of the largest single-month drops since the pandemic. Unemployment ticked up. Manufacturing employment hit a four-year low. The economy was already showing signs of strain when the fuel shock arrived. Rising costs on top of weakening employment is the classic stagflation setup, and it is the one the Federal Reserve has the fewest tools to address. The tools that slow inflation also slow growth.

So what does this mean for real estate here in Washington?

For new construction, projects that were already marginal are getting harder to pencil out. Fuel, materials, and tariff costs are all moving in the same direction at the same time. Developers who locked in financing and supply agreements months ago are in a fundamentally different position than those coming to market now.

For buyers, affordability tightens further. Not because home prices move quickly, but because the monthly cost of any given purchase rises with rates. The people most affected are those already at the edge of what they can qualify for.

For existing owners, hard assets like land and improved property tend to hold value reasonably well in a cost-push inflation environment. What they do not produce easily is liquidity. Selling into a high-rate environment means your buyer is facing the same math you are trying to escape.

All of this lands on a market that was already under significant stress. According to the Washington State Department of Commerce, the state needs to add 1.1 million homes over the next 20 years just to keep pace with population growth, more than 50,000 new units every year. More than half of those need to be affordable to lower-income households. The state's own housing director has acknowledged that investment in affordable housing has not kept pace with Washington's growth. That was the baseline before construction costs started climbing again.

The Eastside's structural demand is real. The jobs are here, the population is growing, and the policy environment is actively working to add housing supply. But the macro backdrop has shifted in a material way over the past few weeks, and if these trends hold, the effects will show up in permitting activity, project timelines, and buyer qualification numbers over the next several quarters.

I'll keep watching it.

Sources:

Rami Al-Kabra
Real Estate Broker, eXp Realty
(206) 701-9272
[email protected]