The day after Russia invaded Ukraine, we recorded a podcast discussing the effects of war on the housing market. As the war rages on, the information we gave in that podcast remains relevant so we compiled a list of the highlights from that podcast to short reference as you’re navigating buying or selling in this market.
Mortgage rates fell three basis points in the days leading up to and shortly after the invasion. The chief economist at Realtor.com said, “As the world reacts to developments in Ukraine, the uncertainty will likely mean a pause in the recent pace of increases.”
But even with this momentary pause, mortgage rates remain significantly higher than in recent months. According to Hale, only two previous events compare with this recent surge in rates. Following the 2016 presidential election, mortgage rates soared 85 basis points over 10 weeks, and in 2013 during the “taper tantrum” when the Federal Reserve scaled back its stimulus activities interest rates increased by more than 1% over 11 weeks’ time. “In both cases, home sales momentum slowed in the following year due to the impact on affordability, since rising rates mean higher homeownership costs even if home prices are unchanged,” the chief economist said, noting the effects were more pronounced for those who had less money to put toward a down payment.
According to PNC chief economist Gus Faucher “An extended war in Eastern Europe could lead to higher global energy prices and higher U.S. inflation, forcing the Federal Reserve to tighten monetary policy aggressively, and higher interest rates could become a larger headwind for the U.S. economy,” We are already seeing this in rising gas prices, though gas is not expected to sit at these astronomical prices permanently.
What to expect : Uncertainty
Expect momentary pause in rising interest rates. Fear of the unknown will likely cause a slow in the housing market, but the demand does not decrease. Affordability will continue to drop and prices will continue rising. While some buyers are holding off because of uncertainty, others might likely make moves because of the low mortgage rates.
Capital Economics and many other analysts view severe long-term outcomes as unlikely. Even if energy prices continue to spike — largely because of speculation in financial markets — they are likely to decline quickly, based on fundamental supply and demand, said Edward L. Morse, global head of commodities research at Citigroup and a former deputy assistant secretary of state for international energy policy.
We can look at other historically similar situations to guide our actions in this market. For example, riding out a storm in the stock market has been a good strategy over the long term. One year after the 1941 bombing of Pearl Harbor, the S&P 500 gained 15 percent. A year after the U.S. invasion of Iraq in 2003, it was up 35 percent. History shows that just one year after most stock-market-shattering crises, the S&P 500 stock index has risen.
The takeaway:
Global markets typically rebound from war and disaster, and they are likely to do so this time, too.
If you’re thinking of buying a home and know you are going to need to move soon anyway, you need to do it now because rates will rise again and average home prices will continue to soar. Affordability is dropping rapidly, and you will only be able to afford a fraction of what you can now a few months from now. Buy your new home and start building equity as soon as possible. This advice is especially true for Greenville.