What Does the Russia - Ukraine Conflict Mean for the US Housing Market?

March 17th, 2022  / Author: Cesar Gomez
News

On Feb 24, 2022, Russian President Vladimir Putin announced that Russian forces will be entering Ukraine and since then the global economy has been in a constant state of uncertainty. Although the US does not have many direct economical relations with Russia and Ukraine, this conflict is affecting the lives of American consumers. But is it affecting the housing market?

Right now the only direct effect of the war on the real estate market has been a short-term decrease of the mortgage rate, which has become 4.14% since then. However, that does not mean that the market will not feel the consequences in a few months. Quite the opposite, some experts expect that the inflation of food and energy prices will rub off on the home prices, which are high even without the war.

Energy and Food Prices Are Rising

Russia is a major world exporter of natural gas and oil, but ever since the occupation of Ukrainian land and air many countries have imposed sanctions on Russia. With this limited supply, the prices have been going up to record highs everywhere, even in the US.

Regardless of the fact that the US has been energetically independent for some time now, the demand for gas is going up and the prices follow. Energy independence is a state in which a country finds itself when it’s exporting more oil and gas than it imports.

European Union countries are energy-dependent, and that is affecting not only petroleum but also wholesale prices. As the transport of goods gets more expensive, the prices are rising on the racks, too. Everything is touched by the rise of the inflation rate - which is at 7.9% right now.

Food is another thing that makes consumers pessimistic about other bigger purchases. Russia and Ukraine, two belligerent countries, make up 30% of the world’s wheat-exporters and Ukraine is one of the largest producers of corn. Those percentages go even higher when we talk about Europe.

And while the US does not import a significant number of Russian or Ukrainian wheat and corn, it imports many refined byproducts from some EU countries. This makes it more difficult to keep the prices down. Add that extra cost to an already expensive transportation system - and inflation is inevitable.

The State of Real Estate

If we reminisce back to 2021, it is safe to say that it wasn’t favorable to homebuyers. The robust demand and dry supply brought the median sale price to more than $360,000. Competition brings bidding wars to record high numbers, and many lower-earning families are forced to rent because they can’t afford homeownership.

The pandemic-driven low mortgage rate and the inflation that was on the rise even before the start of 2022, underlined the drought in the American inventory of homes for sale. Ongoing world events could only amplify this drought, in the event of demand staying high.

People will not put their houses on the market and there will be even fewer houses in construction. The existing shortage and costliness of lumber and other building materials will only increase - making it impossible to create an affordable house.

The demand should dampen due to buyers’ pessimism, caused by the rising prices and rising rates. But that means that many potential homebuyers will wait it out, left with big energy bills, high food and transportation costs. The housing market will most likely not crash due to the Russian attack, but the homeowners and those who aspire to be one will feel it in their wallets.

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