This past week, news broke in the United States that the Russian invasion had begun. Though airstrikes only fell upon cities in Ukraine, the entire world has felt the impact. It’s very likely that worldwide financial markets will feel the Russian invasion’s impact, which is the most significant military operation within European borders since WWII.
Economists say that the U.S. housing market should prepare for potential changes in consumer behaviors.
However, they also note that the luxury real estate market will feel the brunt of the impact. Cryptocurrency and stocks are the main financial resources luxury home buyers use to pay for their homes. Since the Russian conflict began, these resources have been extremely volatile. According to the New York Times, with global unrest on the horizon, many economists predict that American consumers could cut back on their economic activity.
However, that’s not to say that potential homebuyers in other tiers won’t be hesitant to make large purchases as well, especially with the uncertain impact a potential full-blown European war might have on inflation in the states. As of today, inflation has already reached a 40-year high.
According to Realtor.com, this dramatic increase in inflation is hurting buyers, renters, and homebuilders, with construction costs on the rise.
“It’s all bad for the economy and housing. It’s just a matter of how bad,” said Mark Zandi, chief economist at Moody’s Analytics.
Not only will the Russian invasion exclusively impact housing prices, but it could also have a significant impact on food and oil prices, which could weigh on the back of everyday consumer households. Though the U.S. rarely imports Russian oil, the fact that Russia holds the title as the second-largest global oil producer could shake up the worldwide energy market.
A major increase in gas and oil prices will most likely impact consumer heating costs, which could put an even more significant dent in the homebuilding industry’s global supply and distribution chain. With additional supply chain problems and inflation, the result will be exuberant construction costs.
According to the National Association of Home Builders, construction material prices are already up by 22% this year due to inflation. Over the past 13 months alone, lumber prices have been up by 40%.
High material costs could mean higher mortgage rates, getting rid of any semblance of affordable housing in the near future.
Economists note that unusually high mortgage rates will slow the demand for homebuyers throughout the course of this year, and the crisis between Russia and Ukraine will mean short-term volatility for the stock market. While the forecast is fairly conservative at this point, experts say total home sales will drop to 6.6 million by this year’s end, with growth in sale prices dropping by 5%.
Following the Russian invasion attacks, the economy is also suffering, with threats of sanctions, depreciating currency, and stock market reductions. These elements could impact the ability and desire of prospective Russian homebuyers in the United States.
Historically, Russians purchase a significant amount of U.S. property, especially in places like South Florida.