🏡 Russia Is Brutalizing Ukraine. How Will This Impact US Real Estate?
The war will reduce both the demand and supply of housing.
Russia has unleashed a brutal war in Ukraine. Millions of civilians have been forced to flee the country.
Ukrainian forces and civilian volunteers have fiercely resisted the invasion, despite inferior numbers. According to an estimate released by Ukraine’s ministry of foreign affairs, more than 12,000 Russian military personnel have been killed so far.
The war is likely to continue for a while, despite the crippling economic sanctions imposed by Western democracies on Russia. While innocent Ukrainians will suffer the most, the war will have wider economic consequences across the globe.
How will the US housing market be impacted by the war?
Let’s find out.
Oil Crisis Will Lead To Inflation Spike
Russia is one of the world’s largest oil and gas producers. Since the start of the conflict 2 weeks ago, crude oil prices have already jumped 30% to $127.9 a barrel.
Joe Biden announced yesterday that the US will stop all Russian energy imports. This move will place huge economic pressure on Russia. However, it will also lead to a global supply shortage of oil and gas.
Analysts are predicting that crude oil prices could rise to $200 a barrel soon!
This will lead to a sharp uptick in inflation.
Rising inflation will increase the cost of living, and reduce disposable income. The result?
A short-term reduction in housing demand.
Volatility Will Rule The Stock Markets
Stock markets have been trending downwards since the beginning of 2022. Russia’s war on Ukraine has introduced fresh volatility into the mix.
US corporations are pulling out of Russia, hitting revenues and profits. The ban on Russian energy imports will cause further disruptions.
It’s likely that the S&P 500 will continue moving downwards for the next few weeks.
Volatility in stock markets will hit the savings of potential home buyers.
There will be a small contraction in housing demand.
Mortgage Rates Will Rise - But Slowly
The war has driven up foreign demand for safe assets, such as US treasuries. This will drive 10-year yields & mortgage rates down.
However, Fed chair Jerome Powell has hinted at multiple rate hikes in 2022, including one in March.
Expect mortgage rates to slowly inch upwards over the next few months.
Rising mortgage rates do not lead to a fall in home prices. However, they will increase the monthly mortgage payments of home buyers.
Housing affordability will reduce further.
Supply Chain Bottlenecks Will Gut Housing Supply
Supply chain bottlenecks caused massive construction delays in 2021.
The war will increase the cost of construction materials like cement and steel - and delay construction activity even further!
Inventory will remain low in 2022. This will put upward pressure on home prices.
Russians Might Sell Off Their US Homes
Wealthy Russians might divest their holdings of US real estate, fearing asset seizures by the US government. Will this add a lot of inventory to the market?
No.
Foreign players account for less than 2% of overall home sales. New investments in US real estate have declined heavily since 2017.
And Russians aren’t even among the top foreign investors.
Even if all Russians sell off their US homes, it won’t be enough to move the market either way.
Overall, Russian investment will have a negligible impact on US real estate.
Home Prices Will Rise - At A Slower Rate
In conclusion:
Inflation and stock market volatility will slow housing demand
Supply chain disruptions will hit the supply of for-sale inventory
Mortgage rates & Russian investments in US real estate will have a negligible impact on home prices
Home prices will continue to rise.
But the pace of home price growth could fall to single digits by the end of the year.
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