Impact Of The Ukraine Crisis
Since Russian forces invaded Ukraine, all eyes around the globe are on this country. Attention is also on how the US will respond to the crisis. Just as most predicted, the US will not have military confrontation with Russia. Instead, the US will only impose the toughest sanctions. As a reader of this post, you must wonder how this conflict is going to impact the US real estate market.
More Inflation To Come
Let’s first talk about the immediate impact of the invasion to US and global economy. When a large scale war take place, commodities supplied by that region will increase in prices. This is because production decreases in war zones. We have already seen prices of oil shot up to over $100 a barrel and prices of wheat soar to 9 year high. Higher commodity prices will exacerbate the US’s 40-year high inflation.
As the tension in the region continues, foreign investment in Ukraine will leave and move money into the US. That’s will provide support for the US stock market amid the market worries of Fed upcoming interest rate increase. This is a good news for the Biden administration and gives more room for the Fed to raise interest rate. Nonetheless, policy makers at the Fed will have to walk a fine line in 2022 because a mild interest rate increase can’t fight inflation but too strong of an increase could push the economy into stagflation.
The Short-Term Outlook
In the 1-2 month short term, all real estate segments will see a slow down. Usually everyone pauses during turmoil to see where the chips fall. Lower income families will disproportionally experience bigger impact of the Russia-Ukraine war as higher oil and food costs will take a bigger percentage of their income, compared to that of richer families. Therefore, low price point (25th percentile and below) homes will first see the effects of reduced buyer demand. I expect the middle to high price point homes will experience no impact from Russia-Ukraine war. Their home prices will be driven more by the mortgage interest rate.
