Financing your build: The cost of money just went up.

On Wednesday the Federal Reserve raised its benchmark rate by a quarter point, to a target range of 3.75 to 4 percent. It is the first increase since 2023, the vote was unanimous, and the committee's own projections point to at least one more before the year is out.

I am not going to pretend to be an economist. But I do talk to people about building budgets every day, and the cost of money is about to show up in a lot of those conversations. So here is what I am actually seeing, including the parts that are not good for us.

The cost of money went up

• 3.75 to 4 percent: the new federal funds target range, up 25 basis points
• First since 2023: the previous move in this direction was more than three years ago
• 6 percent and up: where mortgage rates sat before this hike, after moving back above six earlier in the year

Fixed-rate debt you already hold does not change. What changes is anything variable, anything new, and construction financing in particular, which is usually priced off a floating rate while the build is underway.

On a project where construction interest was already a six-figure line, a quarter point is not fatal. But it is real, and it compounds with the thing nobody enjoys hearing: underwriting was already taking sixty to ninety days. If your timeline assumed a rate you were quoted in spring, that assumption is now stale.

This is not good for us either

Higher rates mean fewer people build. Some of you reading this will price a project this autumn and decide to wait, and that is a rational decision that costs DEN money.

I would rather say that plainly than write you a newsletter explaining why rising rates are secretly an opportunity. They are not. They are a headwind, for you and for us.

What I do think is true is that the projects which pencil in a tighter market are different from the ones that penciled in a loose one. That is the part worth spending the rest of this on.

International demand is down, and it is mostly one country

I hear a version of this every week from rental operators and I think it is being misunderstood, so let me put actual numbers on it.

The Commerce Department's travel office counted 68.3 million international visitors to the United States in 2025, down from 72.3 million the year before. That is a real decline, though for context the record year was 2018 at 79.4 million, so this is a slump rather than a collapse.

The important detail is the composition. Strip out one country and international visitation to the US was roughly flat to slightly up. Canadian visits fell about 22 percent.

For anyone running short-term rentals, AirDNA's read is sharper still: international demand for US short-term rentals ran about 12 percent below the prior spring, with Canada down roughly a third against 2024.

If your underwriting assumed cross-border guests, that is the line item to revisit. If it assumed drive-to domestic demand, you are in better shape than the headlines suggest.

Supply is not the problem. Undifferentiated supply is

The story I keep hearing is that every rental market is saturated. The data does not quite say that.

US short-term rental listings are forecast to grow about 2.7 percent this year, against roughly 20 percent at the peak in 2021 and 2022. Occupancy is holding near 57 percent, which is where it sat before the pandemic. Supply is not flooding in. It slowed down, largely because borrowing got expensive.

What did change is where the returns come from. Revenue growth this year is being driven almost entirely by nightly rate rather than by occupancy. That is a market rewarding pricing power, and pricing power comes from being the listing someone specifically wants, not the one that was available.

AirDNA's own framing of it is blunt: poorly priced or undifferentiated listings will struggle, while well-designed, professionally run homes can still grow revenue.

Which matches what we see from the other side. A cabin with a barrel sauna and a hot tub beside it was a differentiator four years ago. Now it is the baseline. So is the vinyl-sided house with the pool and the golf simulator. None of that is a reason not to build. It is a reason not to build the same thing everyone else did.

Build an asset, not just a rental

Short-term rental regulation keeps tightening. One large American city effectively ended the practice in 2023. Plenty of counties have added permit caps, owner-occupancy requirements and density limits since. It is a genuine long-term risk and I would not underwrite a project as though it is not.

The hedge is structural rather than clever. Build something that is a real single-family home on a permanent foundation, zoned and permitted as one, that reads as one on an appraisal.

Do that and your project has more than one exit. It can operate as a short-term rental while that is allowed and profitable. It can be a long-term rental. It can be a second home. It can be sold to a family who wants a house. If the rules change in your county, your asset does not become a liability, it becomes a different asset.

This is most of the reason we are not a tiny-home company and never became one. A building on wheels or a park model is a great product with a much narrower set of ways out of it.

Design stopped being the nice-to-have

Put those three together. Money is more expensive, so your project has to work harder. International demand is softer in specific markets, so the guest pool is more competitive. And revenue growth is coming from rate rather than occupancy, so the premium goes to whoever is distinctive.

Every one of those pressures points at the same answer, which is that the building itself has to be the reason someone books it.

I am obviously not a neutral party here. But this is measurable rather than a matter of taste. Our designs get thousands of likes and hundreds of comments before a single one is built, which is a cheap way to find out whether people respond to a building. Then several hundred of them get built, and we watch how they perform for owners across institutional developers, small portfolio operators and people doing exactly one.

When we started, the thing we were arguing against was the McMansion and the tract house. The argument now is narrower and more specific. There is a lot of generic cabin inventory going up, bought from plan mills for a few hundred dollars, and it is going to have a hard few years.

If you are building in this market, the thing that protects you is not a lower rate. It is a building people go out of their way for. If you are weighing whether a project still pencils, email me at support@denoutdoors.com and tell me about it. I read these.