We’ll be straightforward: the macroeconomic environment heading into 2026 is unusually
uncertain. Rather than pretend we can forecast what the next 12 months look like with
precision, we want to share what we’re watching and how we’re positioning the fund to
navigate it.
Interest Rates: Slowly Moving in Our Direction
Mortgage rates have come down meaningfully from their 2023–2024 highs. After averaging
above 7% through much of 2024, 30-year fixed rates have fallen into the high 5% to low 6%
range as of early 2026, with some lenders quoting below 6% for the first time since late 2022.
This is not the 3–4% environment that fueled the 2020–2021 housing boom, and we
don’t expect to see those rates again. But it’s a meaningful improvement. Every half-point
decline in mortgage rates expands the pool of qualified buyers and improves the economics
of our projects. According to the National Association of Realtors, a sustained move below
6% could bring roughly 5.5 million additional households into qualification range for a home
purchase.
Construction Costs: Skilled Trades, City Fees, and Tariffs Are a Real Headwind
Construction costs remain high. Inflation in 2022-2023 hit construction materials and skilled
trades especially hard and a generational lack of skilled trade workers means that
construction costs remain hard to control. While Consumer Price Inflation (CPI) cooled to
2.7% in 2025, skilled trades like plumbers and electricians remained at 4-5% cost increases
year over year in 2025. This is compounded by permitting, review, and impact fees charged
by cities and jurisdictions. Many cities, including Bend Oregon, dramatically increased their
building permit costs and system development charges (or ‘impact fees’ paid by developers
for putting in utilities. These factor all strain profitability.
Compounding the problem, tariffs imposed on building materials — including a 45% duty on
Canadian softwood lumber, 25% on kitchen cabinets, and 10% on timber broadly — are
adding cost pressure to residential construction. Industry estimates suggest these tariffs are
adding $10,000–$17,000 per new home nationally. For Hiatus, we are mitigating this
through value engineering, smaller home footprints, and locking material costs early where
possible. Our shift toward 500–800 square foot cottages at Parrell is partly a design
philosophy and partly a direct response to this cost environment: smaller homes require less
material, and our Benham Redux design was specifically engineered to minimize waste and
reduce per-unit costs.
Housing Supply: The Structural Shortage Remains
The fundamental supply-demand imbalance in U.S. housing has not changed. While builder
confidence has fluctuated with rates and tariff concerns, homebuilders report the highest
unsold finished inventory since 2010 — a signal of soft near-term demand, but also a
reflection of years of underbuilding. At the same time, household formation continues to
grow, particularly among 1–2 person households, which is the exact demographic our
projects serve. In Bend specifically, the market has stabilized — median home prices are
holding around $700,000–$730,000, inventory has risen to roughly 3.5–4 months of supply,
and local forecasters expect modest sales growth of 2–4% in 2026. This is not a boom, but it
is a healthier market than the one we’ve been building through.
