How the Russia-Ukraine crisis could impact home buyers

As markets react to Russia’s invasion of Ukraine, home buyers are seeing temporary relief from rising interest rates. In the long term however, inflation remains a serious concern.

For the week ending February 24, the 30-year fixed-rate mortgage averaged 3.89%. That’s down three basis points from the week prior. The slight decline shows a retreat from the highest mortgage rate benchmark in years.

There’s a chance rates could move higher as the U.S. and other countries impose sanctions on Russia over the invasion. Gas prices are already surging due to Russia’s position as a major oil and gas producer.

During the last week of February, the 15-year fixed-rate mortgage fell one basis point to an average of 3.14%. The 5-year Treasury-indexed adjustable-rate mortgage averaged 2.98%, the same as the week prior.

As the world reacts to developments in Ukraine, the uncertainty will likely mean a pause in the recent pace of increases,” said Danielle Hale, chief economist at Realtor.com.

Mortgage rates remain significantly higher than in recent months even with this temporary pause. According to Hale, there are only two previous events that compare with the surge in rates. Mortgage rates soared to 85 basis points over 10 weeks after the 2016 presidential election and in 2013 when the Federal Reserve scaled back its stimulus activities, interest rates increased by more than 1% over 11 weeks.

“In both cases, home sales momentum slowed in the following year due to the impact on affordability, since rising rates mean higher homeownership costs even if home prices are unchanged,” Hale said. She noted the effects were more noticeable for those with less money to put towards a down payment.

Whether or not a similar string of events will occur in 2022 remains to be seen though signs point in that direction. According to the Mortgage Bankers Association mortgage application data, home-buying demands have fallen back in the face of the rising rates.

JPMorgan’s chief economist, Bruce Kasma, told CNBC that the Russian invasion of the Ukraine makes the Federal Reserve’s position more complicated. “There is a scenario where the growth hit starts to get more substantial. There’s also scenarios where the price increases are not as damaging to growth and it’s feeding inflation.”

You can read more about Russia’s invasion of Ukraine and it’s impacts on the Federal Reserve here