War in Ukraine is partially to blame for ‘extreme shortage’ of U.S. homes for sale, Redfin says
It just isn’t housing’s year.
After months of rampant competition and high prices, the invasion of Ukraine has added even more fuel to the fire by creating an “extreme shortage” of homes for sale, driving prices even higher.
Those are the words of Redfin, the real-estate brokerage firm whose weekly updates have been a real-time catalogue of America’s pandemic-era housing crisis, with prices shooting higher each and every week.
The median home price across the country hit an all-time high of $363,975 for the four-week period ending Feb. 27, 16% higher than the previous year, according to a Redfin report published on Thursday. This is the highest year-over-year increase in housing prices we have seen since last August, when the market reached a flaming-hot apex.
The real estate market has been tight for months now. Demand for new homes is at a record high, but the pandemic and supply chain delay for scarce construction materials like lumber has kept the number of new homes for sale at a historic low. Active listings right now are 24% lower than last year, and a shocking 50% lower than March 2020, according to the Redfin report.
So how does a ground war in eastern Europe translate to higher prices in the suburb close to you?
How a European war sends U.S. housing prices higher
“The war in Ukraine has rattled the global economy, causing mortgage rates to fall after weeks of increases,” Redfin deputy chief economist Taylor Marr was quoted as saying in the report.
Lower mortgage rates makes it easier for more homebuyers to enter the market, which has created a momentary surge in competition for new houses. Mortgages fell from 3.89% to 3.76% in the week following the invasion of Ukraine, according to data from Freddie Mac.
The war has created global economic uncertainty, and in times of uncertainty, investors tend to move out of stocks and towards government bonds, generally considered to be much safer ways to hold on to assets.
Because bond rates are closely tied to the interest rates of mortgage lenders, when bond rates rise, so do mortgage interest rates, which leads to overall mortgages being lower.
Mortgage rates had been on the rise for several weeks leading up to the invasion, which economists believed would dampen competition and cool off the market’s exorbitant prices. News of the invasion and subsequent economic unpredictability has scrambled that equation, as the suddenly low mortgage rates have fueled a surge in demand for new homes.
Wait it out if you can
But Redfin housing experts believe that the competition and high prices will be temporary, so prospective buyers may be inclined to wait it out.
“The dip in mortgage rates should buoy homebuying demand temporarily, fueling continued price gains,” Marr said. “But demand may drop off if the Federal Reserve raises interest rates again as expected.”
The Fed has drafted plans to implement progressively higher interest rate hikes throughout the year to temper the runaway inflation that is affecting everything from housing to supermarket prices in the U.S., which would eventually bring mortgage rates back up. And despite the current geopolitical circumstances, it is unlikely that the central bank will reverse course on this.
Fed chair Jerome Powell recently reiterated his stance that inflation is the prime target that needs to be addressed by the agency, and the hikes in interest rates will still happen as planned.
“For now, I would say that we will proceed carefully along the lines of that plan,” Powell said at a House Financial Services Committee meeting last week. “We’re going to avoid adding uncertainty to what is already an extraordinarily challenging and uncertain moment.”
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