Ukraine-Russia War And Real Estate
Over the past few weeks the world has been watching with trepidation as the Russian invasion of Ukraine continues in front of our eyes. It’s impossible to predict where this conflict will go in the nearterm, midterm, or longterm. There have been ongoing talks between the two nations in hopes of brokering a ceasefire. Whether these talks are successful is unclear. What is clear is that there is a range of possible outcomes from this conflict that could impact everyone around the world to varying degrees. The reality of this conflict is that it is taking place in a globalized world. What happens in Europe impacts us here in America. What happens between militaries has ramifications for economies. How will this conflict impact the real estate industry here in America? What should home buyers, homeowners, and mortgage applicants know? Here is how the Ukraine-Russia war could impact US real estate …
Lumber Costs Could Impact Home Buyers
One feature of the recent real estate market has been the way that material costs have impacted home prices. Last year, a lot of energy was spent discussing how global lumber shortages were causing home prices to rise. Lumber is a core material for building a house. As lumber prices climb, so do the costs of building homes. This means that any new units that are built while lumber prices are high, will have to go on the market at a higher price. For first-time home buyers, rising lumber prices was an unwelcomed trend. Many first-time home buyers were looking forward to new housing projects coming onto the market. The hope was that the added inventory would provide some price relief for first-time home buyers who have seen prices rise dramatically. Fortunately, lumber prices declined, along with the costs of other materials. That was until now …
Today’s conflict between Ukraine and Russia threatens to reverse the positive trends we have recently seen with material costs. The fighting in Europe threatens to reduce the available lumber supply, which in turn will increase lumber costs. As such, futures markets are going haywire and investors are betting that lumber prices will again go through the roof. This is bad news for any home buyer who is hoping to wait around for home prices to level off or decline. As long as building materials are expensive, home prices will not be coming down anytime soon. Ultimately, buying a house right now might be the best opportunity you have for a market discount as prices might continue to increase.
Conflict Could Change Mortgage Rates
Lumber costs are not the only things impacted by conflict between Russia and Ukraine. Mortgage rates might also be affected by continued conflict. While the US economy has been roaring back since the peak of the pandemic, inflation has been a top concern. Today’s inflation rate is as high as it has been in 40 years. In order to curb these inflationary pressures, the Federal Reserve planned to raise interest rates several times over the course of this year. However, the current conflict could cause the Federal Reserve to change their plans. Wars can cause inflationary pressures, especially this one. The Ukraine-Russian conflict could greatly disrupt wheat production, which could increase global food prices. The Federal Reserve, already serious about tackling inflation, might be even more aggressive. Rate increases might come faster than expected, which means that mortgage rates will also rise.
Mortgage rates have been rising over the first part of 2022 and that trend is expected to increase. The war could hasten this trend and home buyers will start to feel the crunch. While today’s mortgage rates are higher than the historic lows we saw during the pandemic, they are still historically low. Mortgage rates will not rise to a point this year where home buyers will be deterred from purchasing a home. However, every increase in mortgage rates means that home buyers will pay a lot more over the lifetime of the home loan.
Final Thoughts
How long this conflict will last is anyone’s guess. We certainly do not have a crystal ball that tells us what we should expect from the Russia-Ukraine war going forward. What is clear is that we should expect something. In some sense, we live in a very small world. Events in other nations have ramifications for our lives here in America. Unfortunately, it is difficult to predict what those ramifications will be. As this situation progresses, we will continue to monitor how it will impact home buyers and homeowners. For now, the team at Peoples Choice Mortgage will continue to help home buyers and homeowners respond to today’s mortgage market in the best way possible. If you are a home buyer who has questions about a mortgage or a homeowner who is interested in refinancing your current home loan, contact us. No matter what’s happening in the world, we’re here.
