Real estate marketing and beyond
This quick story will change quickly. At first, the Russian-Ukrainian war is likely to impact the US residential real estate market in several ways. The two most likely and quickest are probably an increase in building material costs that is offset by a lower increase in mortgage rates.
The conflict is felt around the world and soon in your neighborhood. Global financial markets have already developed a serious case of jitters. One day the financial markets plunge and the next brings a major rebound. This is dramatic uncertainty and financial markets do not like uncertainty. Pension funds, 401k, stocks, cryptocurrency and all monetary storage systems have become volatile. These are the main places where homebuyers and investors withdraw funds to make real estate purchases.
The high-end real estate market for vacation and luxury residences will probably be the first sector impacted. These purchases are easier to delay and draw more funding from volatile financial markets. However, real estate is a major purchase for buyers in all price ranges and reluctance to pull the trigger will spread everywhere if the Russian-Ukrainian war drags on for very long.
Crude oil prices and inflation need to be watched closely. The results of the next Federal Reserve meeting March 15-16 have become even less secure. Inflation was expected to cause interest rates to rise by a quarter or half a percent. But the rapid rise in crude oil prices will soon amplify inflation in all sectors of the global economy. Higher transportation costs will not only be felt at gas pumps, but will affect everything transported by land, sea and air. Everything will become more expensive, from the cost of 2X4s to build houses, to appliances for a kitchen renovation, to the cost of toothpaste in the already renovated bathroom. Crude oil prices will certainly increase home heating costs and pose an additional threat to the already fragile supply chain.
For now, lower mortgage rates seem to be a beacon of hope in the real estate market. Although inflationary pressures are much higher, the immediate reaction of the mortgage market was a drop in interest rates which had been rising steadily since the start of the year. This is mainly due to nervous investors shifting money to the safer options of mortgage-backed securities, US Treasuries and safer corporate bonds. In light of all that is going on, this transfer of investment funds has put downward pressure on mortgage rates. At least temporarily and maybe until the outcome is known from the March 15-16 Federal Reserve meeting.
What could be interesting is that the effect could be felt on both the supply and demand side of the residential real estate market. High oil prices will fuel inflation. Inflation slows consumer demand and could eventually lead to a recession. The reality of war has already disrupted stock markets. Potential buyers don’t know how much their investments are worth from one day to the next. Interest rates are also in question. Less money for down payments and higher interest rates will reduce demand for homes. Higher construction costs will slow new construction, further reducing the supply side of the equation. The conclusion could be that supply and demand will decrease in the coming weeks. This cannot be good for the residential real estate market as a whole. But there is more to come…
Last week, the Federal Reserve was leaning towards a substantial 1/2 percent interest rate hike. It is now possible that the opportunity to slow inflation has been missed. The Federal Reserve may now have to deal with inflation as the possibility of a global recession looms large. The Fed fights a recession by lowering the interest rate. This would help support housing demand. A new level of importance has been added to the Federal Reserve’s March 15-16 meeting. This will indicate whether the Fed intends to continue to catch up with developments in the economy or whether it will try to distance itself from changes before they occur.
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