You can’t turn on the news without seeing more live reports from the Russia-Ukraine war, but lately, I’ve had a few of my clients asking how this war might impact the US housing market. Honestly, I really haven’t given that much thought, but I guess it’s because I already know the answer. It really won’t effect it at any significant level.
First, any decline in international real estate transactions will have little direct impact on the U.S. housing market. Russian foreign buyers account for less than 1% (0.8%) of foreign buyer purchases in the United States. From April 2015 – to March 2021, China, the United Kingdom, Germany, and France accounted for nearly 20% of U.S. foreign buyers. Canada accounted for 11% of U.S. foreign buyers, while Mexico and Brazil accounted for 11%. Even in Florida, which had the most Russian purchases, they account for just 0.2% of Florida’s total market. Overall, foreign buyers only account for about 2% of existing-home sales, according to NAR’s 2021 International Transactions in U.S. Residential Real Estate Report.
Second, although the war in Ukraine did have a short term effect on lowering mortgage rates, (the 30-year fixed-rate mortgage averaged 3.76% in the week ending March 3, down from 3.89% the week before) rates will likely increase in the coming months. They were already heading upward prior to the war so that’s the direction they will likely continue in. Experts say the top cause is inflation, which remains high, with the Bureau of Labor Statistics reporting Thursday that it was 7.5% year-over-year in January, the highest since 1982.
If anything will affect the overall housing market in the US, it’s likely to be the rising costs of energy above anything else. Gas prices have soared to record levels in the U.S., and President Biden warned on Tuesday that the cost of gas “will go up further”. That means higher natural gas and electricity costs for US homeowners. It will also mean increased costs for new construction to some degree, as companies that manufacture building materials will have to raise prices to compensate for the increase in energy costs.
From what I’m seeing in the real estate market today, home prices will continue rising for the next few years. The biggest problem is that we still have a shortage of homes for sale and there are more buyers than available homes to sell them. That’s not going to change quickly either as new construction is lagging because of higher costs and supply chain issues. Builders simply can’t build them fast enough to keep up with our current demand, so the cost of resale homes also rises. In short, price increases and bidding wars will likely continue for at least all of 2022.
The upside is that your current home, or any new home you buy, will increase in value this year.