Rate Uncertainty Leaves CRE Market Searching for Clearer Price Signals Article originally posted on Globe St. on August 21, 2025 Commercial real estate investors are facing a complex environment as persistent uncertainty around Treasury yields clouds key decisions about deals, valuations and capital strategies. Ivy Zelman, founder of Zelman & Walker, addressed this uncertainty in a wide-ranging discussion with Willy Walker, CEO of Walker & Dunlop, about housing sector fundamentals and their broader implications for market participants. Zelman emphasized the challenge that higher-for-longer interest rates pose for both the for-sale and rental segments of the housing market, and by extension, for commercial real estate asset classes whose pricing and activity are closely linked to borrowing costs and consumer sentiment. She observed that one of the defining features in the for-sale market is the prevalence of rate buy-downs, explaining that this practice has become a major driver for new home construction. Zelman pointed to the anticipated continuation of “elevated incentives to continue to pressure price,” highlighting how ongoing uncertainty around the cost of capital is compelling developers and sellers to find ways to maintain demand, often at the expense of margin and pricing power. When asked about the impact of macroeconomic variables, especially tariffs and their potential inflationary effects, Zelman said, “Tariffs will be inflationary in the home improvement market, but we’ll see continued offsets in new construction, and new construction is a much smaller piece overall in terms of the impact, so it could be slightly inflationary, and probably leads to keeping rates higher for longer, at least stubbornly high on the long end of the curve, if those tariff increases continue to hit the market.” For CRE investors, this kind of macro-driven ambiguity is particularly challenging. Uncertainty about when or if rates might move lower keeps the market in a holding pattern, stalling investment activity and limiting the confidence needed to move forward with acquisitions or the repricing of assets. This waiting game has practical effects. The bid-ask spread in transactions for apartment assets and other core CRE properties remains wide, in many cases stalling deal flow altogether as buyers demand discounts for uncertainty and sellers resist marking down prices before there is a clearer direction from the interest rate environment. As Zelman noted, the combination of consumer stress and potentially persistent inflation suggests little immediate rate relief: “We already know that consumers [are] so stretch[ed] so unless we had some significant rate relief for other reasons, I think it’s going to be an upward bias to inflation, at least within the home improvement market.” Zelman’s comments also highlight the importance of adjusting underwriting assumptions and deal structures. Given that “new construction is a much smaller piece overall in terms of the impact,” CRE professionals are reminded to stress-test assumptions against a scenario in which the 10-year Treasury remains elevated—or even climbs further—instead of reverting to historic lows. She suggested that the market may not find its footing until more transparency emerges around economic policy or inflation trends. As transaction volume remains subdued and price discovery grows more difficult, participants across the industry are being forced to adopt a more granular approach to risk and reward. In this environment, holding assets with flexible debt structures, locking in lower rates where possible and focusing on supply-constrained markets or unique value propositions may help to offset some of the destabilizing effects of rate uncertainty. The path forward, Zelman concluded, is to plan for continued ambiguity and prioritize resilience in both asset management and investment strategy.