Waking up to the news of the Russian invasion of Ukraine was devastating, and we were saddened to see videos of missile strikes and photos of battles igniting across the country. We want to take a moment to address how the conflict on the other side of the world could impact the U.S. housing market.
The escalating conflict in Europe will make the global economy weaker, resulting in opposing pressure on mortgage rates: The Federal Reserve fighting inflation is pushing rates up, while the conflict is pulling them down. Even with uncertainty and economic volatility, our most recent housing-market outlook–which predicts slowing sales volume and price growth, as well as small mortgage-rate increases throughout the year–is unchanged.
The swift rise in mortgage rates is slowing
Financial uncertainty is slowing the rise in mortgage rates, with the average 30-year fixed mortgage rate sitting at 3.89% in the week ending February 24. That’s down slightly from the 3.92% peak the week before, but up from roughly 3.1% at the beginning of the year.
Pumping the brakes on rising mortgage rates could help homebuyers by making monthly payments slightly smaller than they otherwise would have been.
Economic uncertainty may reduce homebuyers’ ability to make down payments
Global markets don’t like conflict and investors don’t like uncertainty, which means the financial markets are volatile and weakened.
That impacts the housing market because many homebuyers rely on selling stock or tapping into their 401(k) for a down payment, which is especially true as rising home prices increase the amount of cash necessary for a down payment.
Volatility in the financial markets may also erode consumer confidence around the U.S., which already fell earlier this month.
Rising gas prices could dampen homebuyer demand
Oil prices spiked 7% initially to more than $100 a barrel, and rising energy prices is one of the biggest drivers of this year’s record-setting inflation. That’s relevant to the housing market in several key ways.
First, rising energy prices can prolong inflation, which means the Fed has more reason to fight inflation by increasing rates, which could further push up mortgage interest rates and slow homebuyer demand.
Second, increasing gas prices can ripple through the economy quickly. That could lead to weakening job growth, limited pay raises and Americans having less money to spend on homes.
The conflict could dampen Russian homebuying in the U.S.
Russia’s economy is suffering in the wake of the attacks, with its stock market dropping, currency depreciating and threats of sanctions. That could impact the desire and ability of Russian homebuyers to purchase properties in the U.S.
Russians have historically purchased a fair amount of property in the U.S., specifically South Florida.
With the impact of Russia’s attack on Ukraine in mind, our most recent housing-market outlook remains unchanged. The forecast is relatively conservative. It shows total home sales slowing to 6.6 million by the end of 2022, sale-price growth slowing to 5%, and continued yet smaller increases in mortgage rates throughout the year, eventually reaching about 4.3%.
Here are some highlights of the most recent housing-market data, which shows strong but stabilizing homebuyer demand:
- Redfin reported this week that new listings of homes for sale have been growing for 4 consecutive weeks, which is evidence that January’s shortfall in listings was temporary and buyers should soon have more to choose from.
- Homebuyer demand remains strong this week, with pending sales rising this week rising for the first time since mid-January and the average home selling for 0.5% above its asking price. Fifty-eight percent of homes that went under contract had an accepted offer within two weeks on the market, an all-time high.
- The National Association of Realtors reported that existing home sales jumped 6.7% in January from the month before to 6.5 million. Prices rose 15.4% year over year.
- Prices of newly built homes rose 13.4% from a year ago to $423,300.
- Mortgage applications dropped 10% week over week for the week ending February 18 to their lowest level since December 2019.
- Affordability is a major concern for homebuyers, with the typical mortgage payment up 24% from a year ago. But homes are still slightly more affordable than they were in the 2000s, when loose credit restrictions led to record home sales.
As seen on: Redfin.com