Early in the month, Russia’s threats to invade Ukraine triggered a stock market sell-off. An invasion had begun by the end of the month, leading to sanctions against Russia that caused a surge in oil, gas, and grain prices. Historically, geopolitical conflicts of this nature cause financial markets to react the most when energy prices spike and the Fed tightens monetary policy. The United States has become more self-sufficient in energy over the past decade (from energy conservation and the development of shale oil production), which may help steady prices here. Europe, however, is more likely to feel a more significant impact because it is heavily dependent on Russia for natural gas.1 Additionally, the market and the rest of the world continue to see how the U.S. and Europe react.2
Mortgage Rates Rise, Housing Supplies Drop
An index published by Bankrate.com has 30-year fixed mortgage rates up a full percentage point since Christmas.3 While some homebuyers still benefit from low rates that may have been locked in weeks ago, new mortgage applicants feel the increase’s effects, which will reduce their purchase power and affect demand. The National Association of Realtors reported an increase in home sales in January, contributing to today’s lower home supply levels (down 16.5 percent from January 2021). Housing inventory will decrease further following the decline of U.S. housing starts, although this may be temporary as future building permit applications are holding steady. Many homeowners are still looking to tap into the recent rise in their home equity. These “trade-up buyers” are now competing with first-time homebuyers over the scarcity of supply. Homebuilding has slowed because of supply chain challenges and product shortages, adding up to 12 months to completion dates (and dollars to the final costs to homebuyers).
1How War in Ukraine Threatens the World’s Economic Recovery, Bloomberg, 2/25/22
2Ukraine-Russia crisis: who’s winning the international influence war? | Ukraine | The Guardian, 2/19/22
3Housing Market Dysfunction Worsens With Higher Mortgage Rates – Bloomberg, 2/17/22
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