I hope you and yours are healthy and coping with the world headlines as best you can.
On that note, I wanted to keep you apprised of how the Russian invasion of Ukraine has — and could still — impact the U.S. housing market, and thus, you or your clients who have to make decisions about real estate.
- Surge in Oil Impacts Housing: Because Russia is a major producer of oil and natural gas, sanctions will cause a pricing surge both here and in other major economies throughout the world. Should this lead to an extended war, the Federal Reserve will need to raise interest rates in response to the higher global energy costs. And, inflation at a rate we haven’t seen in four decades will likely cause interest rates to resume rising.
- Affordability: Rates impact affordability, of course, because a 1% change in interest rate has roughly the same impact as a 10% change in mortgage payment. As affordability continues to erode, home values will be driven down.
- Buyer Hesitancy: Like we experienced at the start of the pandemic, major unrest begets economic uncertainty, which forces buyers to rethink whether now is the time to make big purchases or sudden moves. As buyer demand eases and inventory builds up, values tick downwards.
The two metrics to watch are interest rates and affordability. Should those turn away from a buyer’s favor, then we will start to see values decrease. For now, we are not seeing any impact on pricing, but impact on values typically lags by one to two months behind consumer behavior.
While I have some insider intel, we never truly know a market has turned until after it has. Only hindsight shows the highest and lowest points on the bell curve. So, as you counsel your clients to either sell or refinance, I’d encourage them to make an informed decision and consider what we know is true now: that values are at an all-time high and rates are still at bargain-basement lows.
Because of the challenging nature of the market — further impacted by war, no matter how far away — it’s more important than ever to have a real estate expert at your fingertips. I am always happy to answer any questions you or your clients may have about moving on to their next chapter.
Wishing us all, peace.