POTENTIAL IMPACTS ON US HOUSING MARKET FROM THE INVASION OF UKRAINE

The largest military operation in Europe since World War II is taking place in Ukraine.  There are several possible impacts on the housing market here in the United States of America.

The current housing market is being fueled by a scarcity of homes and the entry of millennials into the market for homes.  As long as demand exceeds supply, homes’ prices will keep rising.  As difficult as it may be, the large-scale geopolitical event we are witnessing in Europe may help balance and stabilize the housing market here in the states.

The economic impacts of the Ukraine conflict have impacted financial markets from crypto to stocks.  Inflation resulting from the pandemic was already affecting retail prices and grocery stores.  The war in Ukraine is putting a strain on oil supplies, and prices are rising at the pumps adding to the inflation rate.  Under normal conditions, inflation leads to higher interest rates that price some buyers out of the housing market as affordability becomes a significant issue.

There does seem to be an overall slowing of the housing market, which may mean we are seeing a smaller number of buyers, leading to fewer transactions.  While higher interest rates, or even the fear of them, may be keeping some buyers on the sidelines, many buyers are still paying in cash for homes, and the fluctuations in interest rates are of little concern to that pool of buyers.

The increased volatility of the financial markets recently could have either a positive or a negative effect on the housing market.  Suppose the stock market and other equities markets decrease in value significantly.  In that case, investors may move their money into real estate where a more reliable return on their investment could be received, which would add fuel to the current sellers’ and increase affordability concerns.

However, discretionary buyers (i.e. vacation home, second home, or investment buyers) may be more cautious in a period of market uncertainty and adopt a wait and see attitude.  In such a scenario, the current sellers’ market would cool somewhat.

While it is too early to predict how the current state of affairs in Europe will affect housing prices, these are some of the potential outcomes.  The impact will depend mainly on how long the conflict lasts, whether or not it escalates, and the cost to the world economy.

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